Hong Kong Fluey
It’s no secret that I like being right, dear readers. But not like this … not like this.
The Wuhan coronavirus has spread to nearly 3,000 confirmed infections and close to 80 deaths. China has now quarantined 16 cities, issued a group-travel ban and a ban on eating wild meat in Wuhan.
Yes, that last point seems rather bizarre to many of us who reside in the States. Why are the Chinese eating wild meat? But just think for a second if the U.S. government issued a ban on eating deer meat in the Midwest to prevent a virus spreading. That hits a bit closer to home, doesn’t it?
But I digress…
Outside of China, there are five confirmed cases of the coronavirus in the U.S., and a handful of cases in countries such as France, Japan and South Korea.
Wall Street is reacting to the rapid spread of the coronavirus as I expected. Heading into the midday, losses were nearly 2% across the board for all of the major market indexes.
The Dow Jones Industrial Average plunged 500 points at its lowest levels of the day. The tech-heavy Nasdaq Composite Index shed some 2.2% at its lowest levels, as traders took profits on China-exposed chip stocks.
All in all, it was a really rough way to start the week.
The Takeaway:
I woke up this morning looking forward to researching the glut of corporate earnings slated to arrive this week. I was even somewhat excited about December’s durable goods orders, consumer confidence figures and housing data. (Yes, I know I have a problem. It’s why I write Great Stuff. Welcome to my therapy sessions.)
The economic data seem pretty moot at this point. The potential economic impact of a global pandemic kind of throws all that data out the window. Any takeaways we could’ve drawn from last month’s housing or durable goods orders is now less than conjecture.
Corporate earnings reports also seem a bit less important than before for many of the same reasons. With the advent of the Wuhan coronavirus, the future is once again more uncertain than it was before. Prior-quarter results will be cheered, but not as much as they would’ve been. Guidance will be heavily scrutinized and any signs of weakness punished harshly.
And, as I’ve said many times before, Wall Street absolutely hates uncertainty.
In all honestly, this is exactly how investors should’ve operated before the coronavirus. It’s no secret that Wall Street is in an easy-money bubble. The recent surge higher since New Year’s was a relief rally brought on by the U.S.-China trade deal.
But it wasn’t just the China trade deal. The Nasdaq had hit 28 record highs since November — the most since February 2000. The S&P 500 Index had gone 71 days without a 1% move. Even in a bull market, that’s quite a run higher.
In short, here’s what I’m saying: The market was itching for a reason to sell, and this deadly virus outbreak was the perfect excuse.
What we see in the market right now is a profit-taking sell-off … tinged with a bit of fear. If the current outbreak runs the same course as others — SARS, MERS, Ebola, et cetera — this sell-off is a buying opportunity. That said, there are too many unknown factors still out there:
- How will this impact the Chinese economy?
- Will it affect global trade?
- Will the new coronavirus spread in Western countries?
The best thing you can do right now is not panic. Hunker down, hold what you can and wait. There’s no way to plague-proof your portfolio other than holding stable, well-run companies.
If this pandemic turns out to be a big nothing-burger, you still own stock in growing businesses. Well done.
If it’s going to heck … then it’s time for a Wall Street fire sale! Panicked investors will dump their shares at the littlest signs of trouble, and that’s our best buying opportunity.
Banyan Hill expert Jeff Yastine is able to tell the stock market’s diamonds from the falling rough. Bullish or bearish, Jeff has a trained eye for spotting rock-solid businesses that are best positioned to grow in any market — pandemic or bust.
If you feel unprepared for a market crash gone viral, Jeff just uncovered one stock that should be added to every portfolio … no matter where the market’s headed.
Click here to learn how to get details on the one stock Jeff recommends you buy today.
The Good: The Au Wu-Flu Rally
If you’ve been picking up what Great Stuff has been putting down, you likely hold a little gold in your portfolio somewhere. The malleable metal is nowhere near as hip as it used to be, but it’s still among the best investments for occasions such as these.
With today’s flu-panic sell-off, gold prices are edging in on six-year closing highs. Well, at least bullion prices are, according to FactSet data.
Last I saw, Gold for February delivery (GC=F) was up $10.70, less than 1% away from its January 7 highs. If you remember, those highs were driven by heightened tensions with Iran, after the U.S. killed a top Iranian general.
For those keeping track, that’s two potential black swan events in less than a month. Man, 2020 is shaping up to be a real doozy, isn’t it?
The bottom line here is that, if you don’t already hold gold in some form in your portfolio, you seriously need to consider it.
The Bad: Group Travel Banned
If you and several of your China-based friends had flight plans this week … I have some bad news for you. Effective this morning, China banned international group travel.
The move is designed to help contain the coronavirus outbreak, but the fallout is hitting the airline industry hard … China is the world’s largest outbound travel market, after all. But not all outbound traffic is banned — just group travel. Forbes has an informative article on the ban here, if you want to read more.
And it’s not just the Chinese government. Ford Motor Co. (NYSE: F) and General Motors Co. (NYSE: GM) both restricted employee travel to Wuhan, China.
Still, just the mention of a travel ban tanked airline stocks today.
The biggest losers are those with international reach, such as American Airlines Group Inc. (Nasdaq: AAL), Delta Air Lines Inc. (NYSE: DAL) and United Airlines Holdings Inc. (Nasdaq: UAL). Overall, the U.S. Global Jets ETF (NYSE: JETS) is down roughly 3% today.
Unfortunately, the airline industry already struggles with the fallout from Boeing Co.’s (NYSE: BA) 737 Max debacle. The addition of a pandemic coronavirus and travel bans will pressure the airline industry even more. This weakness will linger for a while.
The Ugly: Sick Chips
If you thought the airline industry was in a bad way today, you haven’t seen semiconductors. Chip stocks have been red-hot in the wake of the U.S.-China trade deal — mostly because many semiconductor companies have crucial manufacturing and supply chains in China.
Those supply chains are called into question once again with the Wuhan coronavirus. Companies such as Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM), Xilinx Inc. (Nasdaq: XLNX) and Micron Technology Inc. (Nasdaq: MU) are getting hammered as the outbreak spreads like wildfire across China.
Unlike the airline industry, however, semiconductors will bounce back quickly from this latest setback.
Why? Take your pick: cloud computing growth, Big Data processing, the mobile device upgrade cycle, the 5G revolution, next-gen consoles … there are so many reasons that semiconductor stocks will rebound from today’s losses that it’s not funny.
When Great Stuff talks about holding on to well-run companies in a mega trend market, this is what we’re talking about … the Intel Corp.s (Nasdaq: INTC) and Advanced Micro Devices Inc.s (Nasdaq: AMD) of the market. These are the companies that you’ll want to own while riding out this latest round of volatility.
Even 5% corrections are not fun. … They tell you they’re “buying opportunities” and they are. They don’t tell you that down 5% the news turns bad and then you’re afraid the 5% turns to 10% or 15%.
This quote comes from a Barron’s article that I linked to above. If you followed that link, you’re probably a bit more worried than usual today. It was very doom-and-gloomy.
When we link to articles like this, our goal isn’t to make you panic. It’s to make you aware of the situation. There’s good, actionable information in that article … but the best piece of advice isn’t the fearmongering by Frank Gretz — it’s the takeaway by author Ben Levisohn:
Great Stuff: Opportunities in the Crisis
The trade war is over. World War III is averted. Harry and Meghan renounced their royal status. For a brief moment in time, all was right with the world…
And then the coronavirus came along and messed everything up.
Much like the Spanish Inquisition, no one expects these black swan events. That’s why they’re called black swan events.
But that doesn’t mean it’s time to run around panic selling. Nor does it mean that you should try to catch every falling knife you see. (Ouch!)
So, how do you find opportunities when the world appears to have gone mad?
Well … that’s what Great Stuff and the gurus at Banyan Hill are here for!
Today, Ted Bauman and Clint Lee of The Bauman Letter have the inside scoop on two sectors to avoid and three opportunities to take advantage of in this crisis. Click below to watch this week’s edition of Your Money Matters:
Until next time, good trading!
Regards,
Joseph Hargett
Great Stuff Managing Editor, Banyan Hill Publishing