Virus outbreak, data stoke growth worry to drive stocks lower

A couple days ago it was reported that there was concern that the markets were not taking the coronavirus with sufficient seriousness and that would impact the market in the near future.  Well, the near future is now because today the market decided that the virus was a serious concern and started a sell off right out the gate that continued all day long and resulted in a 603 point loss on the Dow at close.  It was the worst day for the Dow and S&P in six months.  The positive news is that, though the CDC got into the act by issuing a quarantine on all Americans returning from China, the director also stated that the risk to the U.S. public was low.  Indeed when compared to this season’s flu outbreak, this virus is trifling.  Thousands so far have died from the flu.  However, because of China’s major position as a global player, economists do fear that the virus could have a big impact on the global economy and it is this fear that today triggered the 600+ point sell off.  Volume was extraordinarily brisk at over 9 billion shares traded. 

Wall Street reverses course to end higher after WHO comments

Wow, the whole market was over 200 points in the red almost all day until the last half hour when it suddenly rallied and not only recovered all losses but closed a rather impressive 124 points up.  Today the WHO, after hesitating for several days, took the step of declaring the coronavirus a global emergency stating that this unprecedented outbreak was being met by an unprecedented response.  This accounted for much of the sell off but, at some point, the market decided that the response was adequate and that the bad news was temporary and would get better.  As today’s expert said, “Precautions are being taken and that means at some point there will be a light at the end of the tunnel, that is when the market reacts constructively.”  Q4 also helped with the comeback with earnings expectations improving to the point that yesterday’s break-even has now been upgraded further to a 0.7% rise in Q4 earnings.  This is a complete 360 from a few weeks ago when the forecast was for a minus 0.8% contraction.  More than 7.7 billion shares changed hands which was slightly above the 4-week average. 

Stocks lose steam in wake of Fed statement

The market opened strong up over 200 points but then the Fed issued a policy statement citing uncertainties and the coronavirus and everything came tumbling down.  This is despite the fact that Fed policy remains status quo and the target rate remains in the range of 1.5% and 1.75%.  But investors apparently did not like the words “uncertainty” and “coronavirus” used in the same statement.  Analysts say one concern is that the market doesn’t seem to be taking the health crisis seriously enough so “the market seems to have gotten ahead of itself” which may not portend well in the near future.  But the Dow did close nearly even and the better news is that Q4 reports continued well enough to revise the earnings contraction from yesterday’s 0.4% to today’s break –even.  How soon will it become a positive number?  Volume remains below the 4-week average at 6.8 billion. 

Apple sparks Wall Street bounce ahead of results

With the WHO issuing a statement today that the coronavirus was being effectively stemmed by China, the three indexes soared today, the Dow to the tune of 187 points.  A statement from the U.S. HHS that new steps were in the works to counter the virus also helped boost confidence.  Q4 continues improving, the outlook now being upgraded to a 0.4% contraction in earnings (up from 0.5% yesterday and 0.8% last week) with 1/5 of the S&P now reporting and 68% topping expectations.  But the best news of the day is that consumer confidence, which has been credited for some time now as being the mainstay (even shall we say savior) of the economy, is still going quite strong and has in fact now hit a five month high.  And not just a five month high but, as the chart shows, way above even pre-recession highs.  Volume was a little below the 4-week average at 6.75 billion. 

Wall Street tumbles as virus fuels economic worry

The Dow lost 550 points in the morning, gained back about half of that in the early afternoon before dipping again and finally closing down 453 points, its biggest one day drop since early October.  The S&P had a similar outcome, the Nasdaq even worse, once again all over fears regarding the spread of the coronavirus when China extended its New Year holiday thereby validating worries that the disease was indeed impacting its economy.  Still, the experts continue to insist that it’s a just an excuse to sell off an overbought market and that the whole crisis is “way overblown.”  

Succinct Summation of Week’s Events 1.24.20 (plus more updating on behavioral finance)

Below is the usual summation for the week, the biggest positive that the impeachment is not really impacting the markets, the biggest negative that the impeachment is a national embarrassment.  (It will be left to the individual reader to decide whether it's the Democrats or Republicans who are responsible for this embarrassment.)  The bonus this Sunday is an article just posted yesterday on Barry Ritholtz's Big Picture blog (you can't get more up to date than that) on the latest in cognitive psychology and how that impacts decision making, a concept that can relate to investments or anything.  It is a 93 minute MiB (Masters In Business) interview with Stanford Professor Barbara Tversky and her new book "Mind in Motion: How Action Shapes Thought" detailing on how the 9 rules of cognition affect thought processes.  Hope everyone enjoyed the weekend. 

The human factor

Way back in the Stone Age while we were still meeting monthly as a group, we certainly spent our fair share of time discussing behavioral finance, pretty much agreeing that this emerging field would become the future of Wall Street.  With that in mind, this article that appeared in an issue of Investment News last week seemed particularly timely and appropriate and might serve as a useful refresher and update on what is going on in this very dynamic field.  Enjoy the weekend. It may be foggy and rainy and snowy and grey but at least we're not dealing with ice this time.  And that is a major blessing.