The major equity indices in Asia bounced back from their recent slides shrugging off a growing list of companies warning over the impact of the coronavirus as all but the Shanghai composite closed in the green today. By midday, the main European equity indices were also in the green and US equity futures point to a slight rise at the open after yesterday’s opening dip that reversed into a new record high for the Nasdaq Composite while the S&P 500, Dow and Russell 2000 closed down 0.3%, 0.6% and 0.2% respectively.
Last Friday we noted traders would likely take a cautious stance heading into the long weekend that saw US equity markets closed yesterday in observation of Presidents’ Day and we were correct in our thinking as stocks gave back most of their gains to finish the day little changed. That concern proved to be on the nose as Apple (AAPL) pre-announced that it would not meet its revenue expectations for the current quarter that it laid out on Jan. 28, which was wider than usual as the company looked to account for the impact of the coronavirus – see more in Stocks to Watch.
As we’ve all come to realize in recent weeks, the scope of the virus’s impact has been far greater than many initially expected and even as China looks to get back to work, that resumption has been slower than expected. This morning we are seeing that play out in the latest ZEW Indicators for both the Eurozone and Germany, and as we point out in today’s Data Download China is a larger trading partner for the US than Germany, and likely means we will be hearing more reports like the one from Apple in the coming days.
One of the time-tested strategies for investors is buying companies with an increasing dividend policy. To say it is one of the most loved and most watched strategies would be something of an understatement given the incremental income it generates for investors and the $6.7 billion in assets held by ProShares S&P 500 Dividend Aristocrats exchange-traded fund (NOBL) , which tracks the S&P 500 Dividend Aristocrats Index. If there was any question as to the results of the strategy of buying a portfolio of companies with a long history of boosting their dividends, the below chart should be enough of an answer:
The companies that comprise the S&P 500 Dividend Aristocrats Index are a cross-section of S&P 500 constituents that have increased their dividends for at least 25 years. The index is equal-weighted in nature, which means the position size for each is the same, and the qualifying universe of companies is reviewed each January. In addition, per the index’s methodology document, prospective index constituents must also have a minimum float-adjusted market cap of at least $3 billion at the time of the rebalance data and have an average daily value traded of at least $5 million for the three months prior to the rebalancing reference date.
Last year, four companies were added to the Dividend Aristocrats: Caterpillar (CAT), Chubb Limited (CB), People’s United Financial (PBCT) and United Technologies (UTX), which lifted the number of constituents to 57 up from 53 in 2018. With January 2020 having come and gone, the S&P has added…
Love may be the theme for today’s Valentine’s day, but the markets are mostly feeling, “I think I’ll just throw on my comfy sweats, grab a pint of ice cream and go for a Netflix marathon.” Or maybe that’s just us.
Yesterday investors continued to reassess risk concerning COVID-19, leaving the major US indices little changed. Today Asia closed mostly in the green, albeit just slightly, except for Japan’s Nikkei, which closed down just over 0.5%. Markets in Europe were mixed by mid-day trading, but little changed either way. US equity futures point to a slight increase at the open – another day with little direction.
Perhaps cupid and his arrows have investors distracted ahead of the long weekend in the US? Given Presidents’ Day in the US is Monday, markets will be closed so we wouldn’t be surprised to see traders taking a cautious stance into the weekend to avoid any COVID-19 surprises before markets re-open on Tuesday.
The tariff reductions agreed to as part of the phase one U.S-China trade deal…
Stocks continued to shrug off concerns over the coronavirus and kicked into high-gear risk-on mode. The Nasdaq 100 and Nasdaq Composite both hit new all-time highs. The VIX dropped 10% yesterday alone and the yield on the US 10-year rose 7 basis points. Absent from the party were WTI crude, which fell another 1% to hit a new 52-week low, and Utilities, the only sector to finish the day lower.
That risk-on mode continued today in Asian equities, which moved higher including those in China despite the number of confirmed coronavirus cases in China exceeding 24,000 and the death count approaching 500. While the World Health Organization said this morning that there is still no known treatment at this time, there were reports that scientists are making breakthroughs with a vaccine for the coronavirus. Speculation continues to point to further stimulus moves by the People’s Bank of China as it looks to offset the impact of the coronavirus, including lowering its loan prime rate on Feb. 20, and cut banks’ reserve requirement ratios in the coming weeks.
We think we can safely place “don’t fight the PBoC” alongside the popular investor mantra that is “don’t fight the Fed.”
Yesterday the major indices reversed a bit of the decline since fears over the coronavirus began. The Nasdaq 100 lead the major US indices, gaining 1.5%, the Nasdaq Composite 1.3%, the S&P 500 0.7% and the Dow 30 0.5% while the CBOE Volatility Index (VIX) lost 4.6%. The oil market continues to suffer with estimates that China’s oil consumption could decline by as much as 20%.
Despite a second coronavirus death being reported outside of China and the number of confirmed coronavirus cases in China exceeding 20,000 with the death count surpassing 400, the speed of the virus’s international increase appears to have slowed compared to last week, This potential good news coupled with another round of stimulus from the People’s Bank of China — another $71.2 billion of liquidity via reverse repo agreements on top of the $143 billion injection on Monday — led Asian markets to end the day higher, including a rebound in the Shanghai Index today. European equities have followed suit and are up across the board while US equity futures point to a vibrant market open.
If you were expecting to read about the results of the Iowa Caucuses, we are sorry to inform you that an “election debacle” unfolded yesterday as the Democratic Party found “inconsistencies in the reporting.” According to Mandy McClure, the state party’s communications director, “The underlying data and paper trail is sound and will simply take time to further report the results.” Results could be released as soon as late today.
While this could make for some interesting barbs as we get ready for tonight’s annual State of the Union Address…
First off, after a nail biter of a game heading into half time, the Kansas City Chiefs dominated the fourth quarter to win Super Bowl LIV. Before the game, the AFC and the NFC were tied for Super Bowl victories at 27 each. The last time both conferences had the same number of wins was back in 1990 at 12 a pop. In the prior five years when the 49ers won the Super Bowl, the S&P 500 was up for the remainder of the year every time by an average of 20.2%. The one time the Chief won the Super Bowl was in 1970 which saw the S&P 500 fall 0.3%. The one other time they made it but lost to the Packers, the S&P 500 gained 14.1% in the remainder of the year.
Before the big game, last week we closed the books on January and to say it ended on a weak note would be a bit of an understatement. Coronavirus contagion fears dominated not just the stock market, but the global economy. Last Friday stocks fell sharply, with the major US indices falling between 1.5% and 2.1%. The hit from coronavirus fears has been so profound the S&P 500, the Dow Jones Industrial Average, the NYSE Composite and the Russell 2000 were all in negative territory YTD as of Friday’s close. The Nasdaq 100 and the Nasdaq Composite remained up 3% and 2% YTD, respectively, but even that is dwarfed by the near 37% jump in the CBOE S&P 500 Volatility Index.
And for context on the sharp shift in the markets last week, consider this: a week ago, every major global equity index was at least one standard deviation above its 50-day moving average. After Friday’s close most were in oversold territory except Australia and New Zealand, which were aided by currency declines.
As the Chiefs and their fans celebrate their victory…
As we get ready to close the books on January, gains in equities earlier in the month have come under pressure as the coronavirus continues to expand. Earlier today China’s National Health Commission confirmed there have been 9,692 confirmed cases of the coronavirus, with 213 deaths, but reports suggest the virus has reached at least 18 counties. The U.K. confirmed its first two cases of coronavirus on Friday, while the U.S. and Japan advised citizens avoid traveling to China. We’d remind readers that yesterday the World Health Organization (WHO) labeled the virus a “global health emergency” and the US State Department elevated its China travel advisory to Level 4 – “Do Not Travel.”
Investors and economists are now attempting to assess the impact of this moving target on the global economy and corporate earnings.
In yesterday’s Daily Markets note, your authors shared that as equity markets looked to shrug off the mounting coronavirus news, our suspicion that we had yet to see the real fallout on economic growth and earnings expectations. It would seem we were correct in that thinking. Overnight economists updated their forecasts in an attempt to size up that potential economic impact, and it is weighing on global equities. With more than 7,700 people being infected by the virus and the World Health Organization saying the spread of the virus outside of China is a “grave concern,” one Chinese economist estimated the virus could hit China’s GDP by 1-5% while economists from Nomura shared the “outbreak could cause China’s real GDP growth to shrink to below 4% from the 6% pace.” We suspect these are only the first few revisions to be had in the coming days.
Below in today’s note, we call out various companies who have announced changes to their operations as a result of the virus below, but we’d like to point out that the sheer magnitude of work that is being put on hold cannot help but have an impact on global supply lines as well. Add this to the impact of the ongoing trade war and you have some material headwinds to global growth.
As your authors commented to each other when discussing yesterday’s market rebound following the coronavirus inspired sell-off on Monday – “that didn’t last long!” The Nasdaq 100 lead the rebound, gaining 1.6% on the day with the Nasdaq Composite a close second, up 1.4%. The S&P 500 and Dow Jones Industrial Average rose 1.0% and 0.7% respectively and the CBOE S&P 500 Volatility Index (VIX) fell 10.7%. Helping fuel the rebound were a number of high-profile December quarter earnings reports that delivered better than expected results, but in some cases offered a cautiously optimistic outlook as managements continue to assess the impact to be had from the virus – see Stocks to Watch below.
The number of confirmed coronavirus cases in China approached 6,000 with total deaths reaching more than 130, prompting the Hong Kong Hang Seng fell 2.8% to a seven-week low on the first day of trading after the Lunar New Year holiday. China’s financial markets will remain closed until next Monday after authorities extended the Lunar New Year break by three days as they grapple with the worsening virus that has now recorded more cases than SARS. The People’s Bank of China reiterated plans to use its tools to ensure liquidity once the interbank market reopens on Feb. 3. And as the number of reported coronavirus cases continues to grow, we can add the United Arab Emirates to that list as the first cases of the virus were reported earlier today.
The Trump administration is reportedly considering a temporary ban on all flights from China to the U.S., and…