Coronavirus outbreak containment lifted global risk assets

Commenting on today’s trading in which coronavirus outbreak was the big news, Gorilla Trades strategist Ken Berman said:

Even though the major indices closed just below their record high, traders still had a nervous day on Wall Street. While the mighty tech sector lifted the Nasdaq yet again, small-caps closed lower for the third day in a row, and the fears of a global epidemic seem to have slightly broken the momentum of the historic rally in stocks.

Get Our Activist Investing Case Study!

Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below!

Q4 2019 hedge fund letters, conferences and more

Michael Mauboussin’s 10 Attributes of Great Investors [Pt.1]

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkIn 2016, Michael J. Mauboussin completed his 30th year on Wall Street. The analyst, who was working at Credit Suisse at the time, decided to celebrate by reflecting on the ten attributes of great investors he had observed over the previous three decades. He published his ideas in a report in August 2016. I've summarised Read More

While the major indices quickly erased yesterday’s losses early trading, they finished the session mixed, with the Chinese coronavirus outbreak overshadowing the upbeat corporate earnings reports. The Dow was down 10, or 0.03%, to 29,186, the Nasdaq gained 13, or 0.1%, to 9,384 while the S&P 500 rose by 1, or 0.03%, to 3,322. Decliners outnumbered advancing issues by a 5-to-4 ratio on the NYSE, where volume was slightly above average.  

Stocks mostly flat

Even though the Nasdaq and the S&P 500 both hit record intraday highs in early trading, they gave back most of their gains in the second half of the session. The key sectors diverged substantially throughout the day, and while the strength of tech and consumer-related stocks is a positive sign for bulls, the safe-haven utilities also shined. Treasury yields also edged lower despite their early gains, so it’s too early to conclude that yesterday’s global risk-off shift was only a one-day event, and we could still see a spike in volatility before the weekend break.

The overnight reports claiming that the coronavirus outbreak has been contained lifted global risk assets like gold in pre-market trading, together with the President’s tax cut promise, but sentiment got bleaker again in the afternoon. The rising death toll of the virus and the fact that China effectively quarantined Wuhan, a city of ten million, caused another wave of selling in the most exposed sectors. The virus also reportedly spread to Hong Kong, with two confirmed cases, and the World Health Organization (WHO) might still declare a global emergency.

Coronavirus outbreak fears spread

The string of positive earnings surprises continued yesterday afternoon and this morning, with the majority of the biggest names confirming the bullish fourth-quarter trends. The shares of IBM (IBM) and Abbot Labs (ABT) both surged higher in early trading, and although Netflix (NFLX) got hit hard due to the firm's weak subscription numbers, the tech sector remained relatively strong. Johnson & Johnson (JNJ) also beat the consensus estimate but its shares finished unchanged due to the firm’s slightly disappointing guidance.

Following today’s bullish news from the housing market, the energy sector will be in focus tomorrow, as traders will be digesting the weekly crude oil inventories number following to bearish days for the crucial commodity.  As for earnings, Procter & Gamble (PG) will report before the bell, together with Union Pacific (UNP), Kimberly-Clark (KMB). Intel’s (INTC) report will be under scrutiny in after-hours trading, especially in light of Texas Instrument’s (TXN) mixed release that came out this afternoon. Stay tuned!