Market fears over the coronavirus sharply resurfaced this week.
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Topline: The stock market fell on Friday with all three major indexes posting their first weekly losses so far this month as investors continue to worry about the rising number of coronavirus cases outside of China and the impact that will have on the global economy.
- Stocks plunged on Friday on news that the coronavirus has infected more than 76,000 people worldwide (including 34 in the U.S.) and killed at least 2,249, and as a rising number of cases in South Korea this week raised concern about the crisis spreading beyond China.
- The Dow Jones Industrial Average fell more than 220 points, trading 0.8% lower, while the S&P 500 fell 1.1% and the Nasdaq Composite dropped 1.8%. Friday’s losses put all three major indexes in the red for their first weekly losses this month.
- Hundreds of companies have warned of the virus’ impact on corporate earnings in the first quarter and beyond: Some big names, like Apple, have had to slash revenue estimates multiple times, while others, like Adidas, saw sales drop 85% year-over-year from the virus.
- Business activity in China has taken a massive hit which is negatively affecting the supply chains of hundreds of different U.S. companies that do business there including from big retailers, tech companies, airlines and hotel operators.
- The International Air Transport Association estimates that cancelled flights to mainland China and reduced demand for travel could wipe out $30 billion from the revenues of global airlines, while shipping container companies are estimated to be losing $300 million to $350 million per week from the virus, according to analysts at Sea Intelligence.
- Adding to the bad news on Friday were signs of a slowdown in the U.S. services and manufacturing sectors, which both came in well below expectations: IHS Markit’s PMI service sector registered at 49.4 (down from 53.4 in January and its lowest level since 2013), while manufacturing also declined—but isn’t yet in contraction territory.
Crucial quotes: “Stocks experienced a minor bout of indigestion during the holiday-shortened week, although, in aggregate, the declines weren’t too dramatic,” wrote Vital Knowledge founder Adam Crisafulli in a note on Friday. He continues to find stocks “unappealing, largely on valuation grounds,” since clear “signs of market excess abound.” What’s more, he says, the service sector reading on Friday was especially alarming to investors. “Services has been the bedrock of the US economy, helping to offset the trade-induced slowdown in manufacturing,” Crisafulli describes. “With manufacturing still tepid, if services start to sustainably soften there won’t be many areas left to drive [U.S. economic] growth.”
Crucial statistics: The Dow is down 1.5% for the week, while the S&P 500 and Nasdaq have fallen 1.4% and 1.8%, respectively, over that same period. So far this year
Tangent: A variety of Federal Reserve officials spoke on Wednesday, suggesting that the current interest rate levels and monetary policy stance will stay on hold for the next few months. However, markets are already pricing in a rate cut later this year, according to Federal-funds futures. The central bank has previously said that it is “closely monitoring” whether the coronavirus will hurt the U.S. economy.
Big numbers: In terms of M&A activity this week, there were some notably big deals. Morgan Stanley announced it would buy online discount brokerage E-Trade for $13 billion, solidifying the bank’s shift to the wealth management business. Sprint and T-Mobile, which saw their $26 billion merger approved by a federal judge last week successfully negotiated a revised merger agreement on Thursday: SoftBank will get a smaller share of the combined company (24%)—to reflect Sprint’s declining financials over the last two years—while T-Mobile parent company Deutsche Telekom will receive a bigger ownership stake (43%).
Key background: The coronavirus has had a back-and-forth effect on the markets. Stocks have hit several record highs so far this year as prospects for the U.S. economy remain optimistic. But with the outbreak continuing to hurt corporate earnings and denting China’s already-slowing economy, investors remain worried about its negative impact on the global economy. A variety of experts are forecasting that global economic growth in 2020 will be reduced by 0.2% to 0.3%, while in the U.S., first-quarter growth could take a 0.2% to 0.4% hit.