- Dow Jones Industrial Average futures are deep in the red on Friday morning.
- The coronavirus outbreak and recession fears are weighing heavily on the stock market.
- The virus could hurt the earnings performance of U.S. companies.
Futures on the Dow Jones Industrial Average (DJIA) are deep in the red early Friday morning as the dreaded coronavirus continues to rear its ugly head in more areas. After India yesterday, coronavirus has now reached the U.K. [Financial Times] as the death toll from the deadly disease continues to mount and adds to the fears of a stock market recession.
WHO Coronavirus Emergency Could Devastate The Stock Market https://t.co/d9ZwlOxTp1
— CCN – Capital & Celeb News (@CapitalAndCeleb) January 31, 2020
Having claimed more than 200 lives and affecting nearly 10,000 patients, the coronavirus outbreak is weighing heavily on the stock market that’s already reeling under recessionary fears. A key recession indicator flashed yesterday as there was a brief inversion of the yield curve. This sent the market into panic mode as a yield curve inversion is considered to be an indicator of a recession.
Dow futures deep in the red as challenges mount
Dow Jones futures are down 158 points, or 0.55 percent, as at 5.52 am ET. This points to a lower stock market open on the final trading day of the week. It won’t be surprising to see a bloodbath today after yesterday’s strong showing by the Dow Jones as the headwinds related to the coronavirus outbreak continue to mount.
S&P 500 futures are down 0.60 percent, while Nasdaq Composite futures also add to the gloom with a negative reading of 0.68 percent.
A stock market bloodbath is in the cards today
The U.S. earnings season has progressed well so far, and it looked like the Dow Jones will finish the first month of the year on a high. After all, the Dow had cleared the 29,000-mark earlier this month, but the stock market came crashing down thanks to the fallout of the coronavirus spread.
According to a report from Reuters, the fourth-quarter earnings of S&P 500 companies are expected to increase year over year [Reuters]. There has been a 0.7 percent increase in earnings of the 193 S&P 500 components that have reported their results so far. That’s a nice improvement over the actual expectation of a 0.3 percent decline.
"Coronavirus" has been mentioned on earnings calls from 25% of the S&P 500 companies so far since Jan 1
— Sally Shin (@sallyshin) January 30, 2020
But the enthusiasm of a strong earnings season has been tempered by the coronavirus outbreak. CNBC reports that 27 S&P 500 components included the word “coronavirus” or “virus” on their earnings conference calls this week. The likes of Apple and Starbucks have already warned that coronavirus has the potential to impact their businesses. Apple CEO Tim Cook pointed out [The Street]:
We’ve currently closed one of our retail stores and a number of channel partners have also closed their store fronts. Many of the stores that remain open have also reduced operating hours. We’re taking additional precautions and frequently deep cleaning our stores as well as conducting temperature checks for employees. While our sales within the Wuhan area itself are small, retail traffic has also been impacted outside of this area cross the country in the last few days.
This makes it clear that the coronavirus outbreak is capable of denting the future earnings performance of U.S. companies if it is not contained, and that’s going to negatively impact the Dow Jones.
The fact that the yield curve has inverted during the outbreak of the virus has got market watchers concerned. James Knightley, the chief international economist at ING Bank NV, elaborated on those inverted yield curve fears, [Bloomberg], stating:
The inversion “highlights broader market fears that the virus and its human and economic threat could spread,” wrote James Knightley, chief international economist at the bank. “The more that it does, the more likely it starts to alter consumer and corporate behavior, thereby promoting policy action to mitigate the dangers.
So as fear grips the broader stock market and the Dow Jones in light of the spreading coronavirus, don’t be surprised to see investors pull out their money and cause a crash.