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.
Q4 2019 hedge fund letters, conferences and more
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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.
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!