Uncertainty The Biggest Factor In Coronavirus Sell-Off

Friday, February 28, 2020

Pre-market futures are getting hammered again this morning, following the single highest point drop in the history of the Dow Jones yesterday. The Dow at this hour looks to open down another 500 points, the Nasdaq is off 200 and the S&P 500 -65. Clearly, the unknowns related to the global coronavirus crisis continues to weigh on equities, and will continue to do so until data proves the threat of pandemic is eased.

Case in point, United Airlines (NASDAQ:UAL) , which had already fallen precipitously in this week of torrid stock-selling, announced it has reduced its overall number of flights to Asian countries including Japan, Singapore and South Korea. The airline has also extended its plans to ground any flights bound for China until March 30th. United shares are down another 3% in today’s pre-market, and are currently about 35% off its record highs reached at around Thanksgiving of 2018.

It’s not just the airlines, of course — all sorts of industries are being walloped by the specter of a global health crisis. This obviously is what accounts for the heavy sell-offs. And arguably, it’s the lack of knowledge about the scope of the coronavirus which is really hampering market outlooks. Reports from other countries about contagion and even death totals are keeping uncertainty high. Even in the U.S., as of yesterday fewer than 500 people have even been tested for the coronavirus, known as COVID-19.

That said, keep an eye of consumer products, especially non-perishables, that may improve prospects as this global event continues. Even though they are also down in the pre-market, companies like General Mills (NYSE:GIS) , Campbell’s (NYSE:CPB) and Coca-Cola (NYSE:KO) may find favor in our current market climate.

The U.S. government’s response to the crisis is beginning to take shape. After days of federal agencies like the Center for Disease Control (CDC) and the Department of Health and Human Services (HHS) playing hot potato with the leadership, President Trump put Vice President Mike Pence in charge of overseeing the potential crisis. After criticism emerged over Pence’s qualifications for such a duty, the vice president appointed career health official Dr. Deborah Birx to his response team.

Elsewhere, Advance Trade in Goods for January was better than expected: -$65 billion was an improvement over the -$68 billion expected, and the -$68.3 billion originally reported for the month of December.

Personal Income for January also surprised to the upside: +0.6% doubled expectations of +0.3%, though December’s revision fell 10 basis points to +0.1%. Consumer Spending ticked down a tenth of a percent to +0.2% from estimates, though the month-earlier revision bumped up from +0.3% initially reported to +0.4% this morning.

The smartest, most successful businesspeople and investors have always been able to deal with crises such as the one we’re seeing with the COVID-19 pandemic panic. The key is in obtaining enough information — even if it’s worse than expected — to make sound decisions going forward.

At this stage, the biggest fear of the coronavirus issue is not having proper amounts of data to make these informed decisions. As such, we expect selling to go into the close of the trading week unless news headlines clarify the situation.

Mark Vickery
Senior Editor

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