WASHINGTON – It’s Monday, January 27 and it’s selling panic time on Wall Street. Big time. With shares already clobbered late last week by increasing international Wuhan coronavirus fears, traders watched stocks get hit hard again at Monday’s 9:30 a.m. ET opening bell. Almost immediately, the Dow Jones Industrials dropped nearly 500 points. All other indexes suffered similar declines. Sellers decided not to take any chances.
Stocks have only recovered a bit since Monday’s open. Just prior to the noon hour, all three major averages remain in the red by roughly 1.5% . No one knows where they’ll end up by today’s 4 p.m. closing bell.
Coronavirus fears: Catalyst for an overdue stock market correction?
Today’s spectacular waterfall market decline is something we worried about after last Friday’s across-the-boards market drop. After Friday’s close, the rapidly declining McClellan Oscillator (below) confirmed the market mood by falling deeply below its zero line and well into its oversold zone. Things will probably look considerably worse on this chart after COB today, due to a persistent and growing array of coronavirus fears.
As we’ve noted previously, market sectors likely to suffer immediate effects from the spiraling Chinese coronavirus epidemic – which has traveled rapidly to other corners of the world including the US – include anything related to travel and lodging. That means already beleaguered energy stocks took another savage hit last week and again today. But airlines, hotels, cruise lines, gambling, and associated travel and leisure companies continue to suffer as well from hightened coronavirus fears.
Additional pin action influences other sectors
However, the market carnage hasn’t stopped there. Banks were hit again Monday morning, as were shipping companies and high-flying IT stocks. The latter, in particular, got hit when the Chinese government temporarily shut down tech manufacturing facilities in that country in a related move to fight the spread of the Wuhan coronavirus.
Since a significant portion of tech hardware is either manufactured or partially sourced in China, that put the heebie-jeebies into tech investors. They promptly sold tech shares off. Hard.
Apple shares (trading symbol: AAPL), for example, are currently down over 8 points for a nearly 2.5% loss thus far. And major retailer / tech company Amazon (AMZN) continued is current string of daily losses with a vengeance. AMZN shares have been down over 30 points at some points Monday morning. We hold a few of these shares and it’s been a rocky ride recently. Meanwhile, Amazon’s roughly similar Chinese counterpart, Alibaba (BABA) is doing even worse. Traders continue to saddle those shares with losses in excess of 5% as I’m typing this. It’s hard to get merchandise shipped and delivered if you’re quarantined, which the epidemic’s epicenter, Wuhan, currently is.
Maybe a nasty market decline was preordained
Yep, Mr Market is having one lousy day. But frankly, if it hadn’t been for the ongoing coronavirus fears, it would have been something else. Prior to recent trading days, the trusty McClellan Oscillator told us that stocks remained in an overbought condition. Which means they were getting unnecessarily pricey, particularly as fears of a series of mixed earnings-season reports got underway.
Sure enough, stocks began to sell off last week when they whiffed the potential seriousness of another potentially fatality-causing SARS virus-like epidemic that seemed to be brewing in China.
Already bothered by the asinine impeachment circus on the Hill; and, over the weekend, another deliberately well-timed anti-Trump leak apparently pushed by rogue NSC staffers – the official White House nest of anti-Trump spies – stocks were in no mood for even worse coronavirus news coming out of China.
So where is this coronavirus scare going to take us? And Mr Market?
The number of coronavirus cases in that country has continued to spiral upward, nearing some 10,000 cases there the last time we looked. Worse, that number now includes 85 fatalities. Meanwhile, health officials in California’s Orange County announced confirmation of the 3rd known US case of the disease. Late last week, Connecticut’s rarely reliable Senator Blumenthal publicized a fake 3rd US case. But in short order, that one failed to pass the smell test. The Orange County case, however, is real.
With a wildcard like the coronavirus menace in the air, stocks are likely to remain considerably less stable than usual for at least the next several days. Known unknowns about the virus include the types of individuals who’ve succumbed to the disease. That clarifies somewhat the categories of potential victims who are at greater risk of fatal complications. Early money is on the usual unfortunates: infants and the old and infirm. In these groups, many flu-like illnesses can turn into a rapidly developing and fatal pneumonia. The Wuhan coronavirus seems to be no exception.
We also can’t know how far this virus might actually spread. Nor are we aware how long nations around the world will need to remain on high alert. For these reasons, how long stocks might suffer from the fallout of ongoing coronavirus fears remains unknown. Likewise, how deep the damage could go remains unknown as well.
Current portfolio actions
I’m holding onto most of our positions and reducing a few, particularly in finance and energy. On the other hand, I’ve been doing tiny and hopefully opportunistic purchases of ETFs I’m developing positions in. These include EFG, a well-rated iShares ETF that follows the MSCI EAFE (Europe-Asia-Far East) index. Also on the potential buy list? SDOG, the “Dogs of the Dow” based ETF that includes top dogs in other major averages as well. By definition, underpriced stocks live within this list. Today, we find Mr Market trying to mark these dividend payers down again.
But otherwise, buying is probably not a good idea since we have no idea how deep this downdraft might go or how long it might last.
As always, I’ll do my best to stay on top of things here. But when markets get wild – like this one – you don’t know what you don’t know.
– Headline image: Wile E Coyote returns with more bad news about the stock market’s likely future direction.
(Warner Bros. copyright cartoon character, modified for satirical effect by the columnist.)