In Focus: The Markets Jan.27 - Jan.31
Another tough week for the markets. The coronavirus news beat down the markets for a second week in a row. Even with major names like Amazon, Apple, and Tesla reporting good earnings, the markets couldn't shake the news of the coronavirus.
To start the week Zhou Xianwang, the mayor of Wuhan, the epicenter of the coronavirus alerted the public that 5 million residents left the city before the Chinese government imposed travel restrictions on the city.
The virus continues to spread with over 14,000 confirmed cases in China alone. The spread of the virus has caused Russia to close several borders it shares with China. Japan and Singapore announced plans to restrict travel from China. Indonesia, Iraq, New Zealand, and the Philippines have also implemented restrictions on travelers coming from or traveling through China.
A week after saying the coronavirus wasn't a global health issue, the World Health Organization pivoted this week and declared the coronavirus an international emergency.
For investors the coronavirus has pulled the Dow and S&P 500 into negative territory for 2020. The Dow closed the week at the level it traded at on December 17, 2019. The Nasdaq is still positive on the year, but barely.
Things could get worse for investors. U.S. airline companies American Airlines (AAL), Delta (DAL), and United Airlines (UAL) announced plans to suspend U.S. to China flights. NPR reported Starbucks (SBUX) has closed 2,000 stores amid coronavirus fears. Apple (AAPL) announced it will be closing all of its stores and corporate offices in mainland China until February 9. This comes during the same week in which Starbucks and Apple announced their earnings for the last quarter. Starbucks beat earnings per share estimates by $0.03 and Apple beat revenue estimates by $3.4 billion in Q4 2019.
The flight cancellations and store closings will likely have a big impact on Q1 2020 earnings and possibly Q2 2020 earnings for the companies mentioned and many more.
...We Have a Lot of Work to Do.
Those words were spoken by Boeing(BA) CEO David Calhoun after reporting a revenue estimate miss by $3.8 billion. A year ago Boeing reported an operating profit $5.48 per share, this year the company reported an operating loss of $2.33 per share.
Boeing's last unprofitable year came in 1997, when production issues with the 737 and 747 along with a massive write down caused the aerospace company to report a $178 million loss for the entire year. Back then the stock was trading at around $45 per share, and had a large backlog of orders, and the issue felt more like a hiccup than anything else. Now the company is facing another production issue with the 737 Max. Can the company bounce back in 2020?
Tesla is Growing Up
Tesla (TSLA) reported another profitable quarter, which shot the stock up like a rocket. Tesla's stock closed the week at $650.57, which is a 20% gain from last Monday's open of $541.99. Since early October 2019 Tesla is up over165%, proving me and many others wrong.
The Tesla shorts, who have rattle Elon Musk for the past few years have been bleeding money this week. It's estimated short sellers have lost over $1 billion betting against Tesla. While I've had my issues with Musk and Tesla, I've never taken a long term short position against the company thankfully.
Good news is often short lived in the investment business, and Tesla is no exception. The company was ordered by the Chinese government to shut down it's China factory over coronavirus fears. Tesla finance chief Zach Kirkhorn said the shutdown may impact the company’s profitability in the first quarter of 2020.
When Will it End
It's hard to tell what investors will do in the coming weeks. Will they continue to leave pull money from the markets on more negative coronavirus news; or will they buy once stock prices hit bargain levels and drive the markets back up? It's extremely unfortunate for those infected by the virus and those who have been impacted by the virus. There are estimates that over 75,000 citizens of Wuhan could be infected with the virus, how many of those 75,000 were in the 5 million that fled the city is any one's guess.
I think the news gets worse before it gets better, and the coronavirus could be the catalyst for a slight market pull back. If that does happen, find a good company at a bargain price and go all in.