How Are Markets Reacting To Coronavirus And Quarantine?

Mankind has dealt with its share of viral outbreaks that have wreaked havoc and decimated populations. Now, the world braces for more information on the Wuhan coronavirus. Meanwhile, the word “quarantine” is back in the lexicon, which in and of itself brings a certain amount of fear. 

The word quarantine was in fact coined in Venice, where arriving ships were isolated away from shore for forty days (quarantine) in the aftermath of the Black Death plague that killed 48,000 Venetians or 33% of the population at the time. Today, Festa del Redentore (Feast of the Redeemer) is held every July in Venice to celebrate the city escaping the grip of the epidemic.

So, the market continues to mark time waiting for more impactful earnings and spying the situation in China, where an entire city of 11,000,000 people is under quarantine. Today, the World Health Organization (WHO) will determine the threat level of the Wuhan coronavirus. 

I must say; however, the market is taking it all in stride just as investors seem oblivious to the impeachment hearings in Washington, D.C.  It’s true in the end both should prove to be answers to trivia questions, and yet commentators have worked so hard to spark panic and have found no takers. On the contrary, I get the sense would-be buyers are hoping for some pullback when these dual issues are resolved, and they can aggressively reenter the market.

Or, should I say, ‘feast’ on yet another dip?

The Message of Market

On Wednesday, the S&P 500 and the NASDAQ finished the session higher, while the Dow held on for dear life before slipping 9 points into the red, right at the closing bell. 

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It’s not a big deal, especially considering the continued carnage at Boeing (BA). The good news at the beleaguered aircraft maker came late in the session when management said they would keep the dividend in place, even as rumors swirl about a need to raise $10.0 billion. 

The Market Breadth was mixed, but winners continue to win big time; 52-week new highs:

• 309 Dow Jones 
• 259 NASDAQ

There wasn’t a lot of panic during the session, as some buyers ducked into Utilities and others kicked the tires elsewhere.                      

Housing Boom

The housing boom I called only gets stronger. Existing home sales for December blew the consensus away, climbing 3.6% from November and 10.8% from December 2018. Interest rates last week were 3.65%, down from 4.45% a year ago. Median home prices edged up to $274,000 as the supply plunged.  Homes under $100,000 swooned 14.3% while the overall month’s supply tumbled to 3.0%, the lowest in the history of data series. 

All the homebuilders closed at record highs.

Portfolio Approach

Yesterday, we took profits in one Financial and one Real Estate position.  We are lowering Financials to a 1 weight and raising Cash to 5% (weight).  If you are not currently a subscriber to our Hotline service, contact your account representative or email us at research@wstreet.com.

Today’s Session

Big names have posted results, which are mostly in line, but nothing super. The result has been that the market has been drifting all morning.

PG (lower)

•            Missed revenue

•            Beat earnings

•            Guidance higher

TRV (lower)

•            Beat revenue

•            Beat earnings

CMCSA (higher)

•            Beat revenue

•            Beat earnings

KMB (unchanged)

•            Missed revenue

•            Beat earnings

•            Guidance mixed

TER (up big)

•            Beat revenue

•            Beat earnings

STM (higher)

•            Beat revenue

•            Beat earnings

Central Banks

• ECB leave rates at current levels or lower until inflation targets
• Malaysia joins South Africa and turkey cutting its interest rates this year