Coronavirus Redux: Fear Meters Tick Higher On New Cases As Earnings Season Rolls On

clicks | 6 days ago | comments: discuss | tags: cryptocurrency

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Key Takeaways:
Virus fears return to center stage after new cases announced in China Profit-taking ahead of long holiday weekend could be a factor today and tomorrow Alibaba earnings in focus this morning, and Nvidia results awaited after close
Anyone who went to bed last night thinking the market’s coronavirus fears had faded got a rude awakening this morning. Stocks fell sharply overseas and U.S. futures plunged after China reported thousands more cases and a larger death toll.
The bad news puts this week’s fast-paced rally into question as investors wondered if virus concerns might again quiet down the party Wall Street had been enjoying. We’ve talked about how the virus is going to be an overhang, and sadly, it still is. There’s nothing people can do except hunker down and, of course, watch their health.
After fading earlier this week, fear meters like bonds, gold, and volatility came back into favor today. The 10-year yield slipped below 1.6%, the Cboe Volatility Index (VIX) jumped above 15, and gold prices are firmer. Crude prices edged down toward $51 a barrel. A risk-off tone seems to be back in town.
The travel and leisure sector might be in focus after two days of recovery for many of those stocks. For instance, yesterday saw gains for retailers whose shares had been beaten down by coronavirus. PVH (PVH)—which owns brands like Tommy Hilfiger and Calvin Klein—rose more than 4%. Ralph Lauren (RL) was another big gainer. Cruise line and casino firms also made up ground. These stocks could be a good place to watch today for any rapid reaction to the new virus cases in China. RL, for instance, gave back all of its gains overnight.
Markets Due for a Step Back? Even before China reported these new virus numbers, it seemed possible that the market could be in for a late-week reckoning. We’ve said it before and will say it again: Things can’t go straight up forever. Virus or not, a three-day weekend is approaching, and the last two Fridays saw profit-taking as a big feature. Maybe these new cases could give some people an excuse to take profit a day early, but we’ll have to wait and see how big a factor that is.
All this isn’t to downplay the tragic human toll of the illness, but only to point out that investors might want to consider some caution as Friday approaches. That doesn’t mean run for cover, but it could be prudent to take special care and consider limiting the size of your trades today and tomorrow until things get a little more settled around what the new virus numbers might mean.
It’s possible we could learn more about how quickly it’s spreading over the next few days, hopefully by the time U.S. trading resumes next Tuesday after Monday’s President’s Day holiday. Any word on the pace of new cases is probably going to be sliced and diced pretty thoroughly by then. Remember, the spread had seemed to be slowing earlier this week.
The virus was bound to be discussed as China’s huge tech firm Alibaba (BABA) reported, and shares sank this morning despite the company having a solid quarter. Earnings and revenue topped Wall Street’s consensus views, but the CEO said coronavirus is a “black swan” event that presents “near-term challenges” to the company’s business and could have a “significant impact” on China. Those words might have spooked some investors.
In other company-related news, Tesla (TSLA) shares put on the brakes this morning when the company announced a $2 billion public offering of shares. Even with today’s losses, the stock remains dramatically higher than it was a few months ago, but anyone getting on this train is probably in for some bumps along the way.
PepsiCo (PEP) shares barely budged early Thursday as the company beat analysts’ earnings and revenue estimates but delivered an outlook that was a little light on the fizz. Projected earnings growth for 2020 was lower than analysts had expected.
Earnings Roll On The earnings beat goes on this afternoon as chipmaker Nvidia (NVDA) and digital media firm Roku (ROKU) both report (see more on NVDA below).
Cisco (CSCO) managed to inch past analyst expectations for earnings and revenue when it opened the books after yesterday’s close, but the stock came under major pressure overnight. It’s been a bit of a head-scratcher, seeing CSCO up just slightly over the last year even as so many other Information Technology players just keep going up. The focus today appears less on CSCO beating analyst estimates and more on its sinking revenue and falling product orders. The company cited macroeconomic headwinds.
Data also was in the news this morning as weekly jobless claims looked sparkling at a low 205,000. Inflation numbers for January looked unremarkable with a 0.1% headline rise for the consumer price index.
Age-Old Question: Do Current Earnings Support Valuations? Another reason to consider taking care and not going “all in” might be valuations. This latest surge pushed the forward price-to-earnings ratio (P/E) of the S&P 500 Index (SPX) to 19.4...