U.S. stocks were lower Thursday afternoon, clawing back from late-morning losses when the main stock indexes took a sharp dip from all-time highs, as investors struggled to find their footing amid the coronavirus outbreak.
Although investors have been heartened by daily reports of a slowing rate of the spread of COVID-19, the infectious disease that emerged in Wuhan, China, late last year, deaths and cases of the disease outside of China may be sparking some anxiety, analysts said.
How are benchmarks performing?
The Dow Jones Industrial Average DJIA, -0.56% briefly fell below 29,000, but late afternoon was down 138 points, or 0.5%, at 29,211, after hitting an intraday low at 28,959.65. The S&P 500 SPX, -0.51% was trading 14 points, or 0.4%, lower at 3,371. The Nasdaq Composite Index COMP, -0.81% was off 75 points, or 0.8%, to reach 9,741, after hitting an intrasession nadir at 9,636.94.
The small-cap Russell 2000 index RUT, +0.18%, meanwhile, traded up about 0.1% at 1,693.
What’s driving the market?
Stock markets staged a midday pullback from records as investors found few reasons to drive equity benchmarks to fresh highs, with the declines being attributed to some lingering jitters surrounding the impact of epidemic in China.
“I think investor are starting to question the idea that the economic impact of the epidemic is going to be only transitory,” said Adam Phillips, director of portfolio strategy at EP Wealth Advisors, in an interview with MarketWatch, noting that all three major stock indexes were trading Thursday less than 1% from their all-time highs.
“That begs the question: is the whole impact of the coronavirus baked in? We may have lower to go here, over the short-term,” Phillips said.
Morgan Stanley MS, -4.75% also announced it would buy E-Trade Financial Corp. ETFC, +21.85% in an all-stock deal valued at $13 billion. Shares of E-Trade surged 23%, while those for Morgan Stanley fell about 4%.
That announcement, however, came against the backdrop of deaths from COVID-19 outside of China. A report from South Korea’s Yonhap News Agency said the infection had claimed its first life, and the mayor of the South Korean city of Daegu urged its 2.5 million people to refrain from going outside, according to the Associated Press. Reports indicate that cases of the disease in South Korea have more than doubled to 104 in a day, with 35 additional cases cropping up in Daegu on Thursday.
“We’ve had a six-month uptrend,” Joe Saluzzi, co-head of equity trading at Themis Trading, told MarketWatch about the midday slump. “Certainly this was a warning shot across the bow for everyone to wake up a little. You can sell off in the middle of the day,” he said.
Shares of Intel Corp. INTC, -2.64%, Microsoft Corp. MSFT, -1.68%, Apple Inc. AAPL, -1.13% and other technology companies with exposure to China and South Korean manufacturing led the losses Thursday. The U.S. dollar DXY, +0.17% also climbed for a third session against major currencies, pressuring exporters, as the currency was viewed as a haven.
Earlier in the session, U.S. equity benchmarks briefly punched into positive territory, amid a burst of corporate deal activity that improved appeared to reflect optimism about the domestic economy.
Meanwhile, U.S. corporate earnings for the fourth quarter also have quelled some fears that stock gains have come purely on the back of momentum and speculation rather than fundamentals, like earnings.
“We now have Q4 results from 411 S&P 500 members that combined account for 88.6% of the index’s total market capitalization. Total earnings for these 411 index members are up +1.1% from the same period last year on +4.6% higher revenues,” wrote Sheraz Mian, research director at Zacks, in a note.
Even so, Thursday’s action comes as a reminder of how quickly sentiment can shift to pressure stocks lower, with the uncertainty of epidemic injecting some volatility into markets, even as China attempts to pre-empt the pain.
China’s central bank cut its benchmark lending rate on Thursday, as widely expected, in a move to lower financing costs for businesses. The epidemic has disrupted global supply chains and factory activity in China. The benchmark one-year loan prime rate was cut by 10 basis points, and the five-year loan prime rate by 5 basis points. The coronavirus has infected nearly 76,000, and claimed more than 2,100 lives.
Goldman Sachs’ chief global equity strategist Peter Oppenheimer said that the chances for a correction or pullback in U.S. stocks were rising due to the spread of the contagion out of Asia. “In the nearer term…we believe the greater risk is that the impact of the coronavirus on earnings may well be underestimated in current stock prices, suggesting that the risks of a correction are high,” the strategist said.
How is the U.S. economy?
The number of Americans filing for first-time unemployment benefits ticked up marginally in the most recent week but still hovered near multiyear lows. A gauge of manufacturing activity in the mid-Atlantic area surged to a two-year high in February. The new orders component of the Philadelphia Fed’s survey was at its highest since May 2018.
Which stocks are in focus?
- Shares of L Brands Inc. LB, -3.77% were 3.5% lower, after announcing it would sella 55% stake in Victoria’s Secret to private-equity firm Sycamore Partners for around $525 million.
- Virgin Galactic Holdings Inc. SPCE, +0.96% shares were 4% lower after rocketing higher in early trade and on pace to extend an 8-day win streak.
- Shares of Zillow Group Inc. Z, +17.27% jumped nearly 18% after a set of upgrades following a fourth-quarter earnings call late Wednesday.
- Procter & Gamble Co. PG, +0.61% shares traded 0.6% higher as the company warned that the coronavirus would have a material impact on winter earning.
- ViacomCBS Inc. VIAC, -17.33% shares tumbled 17% after the company’s fourth-quarter results missed analyst expectations.
- Six Flags Entertainment Corp. SIX, -17.15% shares lost about 17% after the theme-park operator cut its dividend.
- Shares of SolarEdge Technologies SEDG, +11.18% jumped near a record Thursday after the company beat revenue expectations and gave an upbeat outlook for growth.
How are other assets performing?
The price of a barrel of West Texas Intermediate crude for March delivery CLH20, +0.90% rose 0.9% to settle at $53.78 a barrel on the New York Mercantile Exchange, lifted by smaller gains in U.S. crude supply than expected.
Gold for April delivery GCJ20, +0.68% clinched a sixth straight gain, rising 0.5% to settle at $1,620.50 an ounce, its highest close in seven years, while extending its climb above the psychologically important level of $1,600.
The benchmark U.S. 10-year Treasury note TMUBMUSD10Y, -2.93% was down 4.6 basis points at 1.523% while the yield on the 30-year T-bond fell closer to an all-time low. Bond yields fall when prices rise.
Trade was mixed in Asia overnight. The China CSI 300 000300, +2.30% rose 2.3%, Hong Kong’s Hang Seng Index HSI, -0.17% fell 0.2%, while the Shanghai Composite SHCOMP, +1.84% advanced 1.8%. Japan’s Nikkei NIK, +0.34% advanced 0.3%, while South Korea’s Kospi 180721, -0.67% sank 0.7%.