The Dow Jones rallied from early losses as the WHO stated it was too early to make an emergency declaration about China's Wuhan coronavirus.
It was another weak day for the Dow Jones, though the index rallied off its lows after the World Health Organization (WHO) calmed fears about a global coronavirus pandemic.
But with the death toll rising in Wuhan and the virus spreading, the stock market kept its eyes locked on China and ignored Stephen Mnuchin’s efforts to sell “tax cuts 2.0.”
The three major U.S. stock market indices were all quiet on Thursday afternoon after recovering from steep morning losses.
The Dow Jones Industrial Average led the way lower for a third straight day, falling 29.07 points or 0.1% to 29,157.20.
The S&P 500 and Nasdaq edged into positive territory, rising 0.07% and 0.17%, respectively.
Thursday was volatile in the commodities sector. Crude oil took a sizeable 1.85% hit amid global risk-off conditions. Putting further pressure on fuel prices, the U.S. dollar surged as safe-haven flows emerged. The price of gold jumped 0.37%.
Concerns over a SARS-style coronavirus epidemic gathered momentum today after Beijing implemented more stringent measures to keep infected cities on lockdown.
The WHO later soothed Wall Street concerns by assuring a jittery public that it’s too early to make an emergency declaration.
The timing of this outbreak is significant because it comes during the run-up to Asia’s most economically significant celebration (Chinese New Year), with substantial hits to services PMI expected as consumers stay home (either voluntarily or by mandate).
Given the potential scale of the issue, Boris Schlossberg, managing director at BK Asset Management, is warily eyeing the potential for a rapid spread of the disease hitting an overbought stock market.
If the virus becomes deadly to the younger, non-compromised cohort, the global panic is sure to rise significantly, but for now, little is known about its pathology aside from the fact that it can be transmitted by air.
Markets remain wary but unperturbed for the time being as investors see little economic impact so far. However, pandemic typically has a slow start and could quickly spread exponentially, so the risks to the downside could be substantial, especially given the massive rally in risk assets.
Further bad news for the Dow Jones came from Donald Trump’s comments at Davos, where he continued to pound the trade war drum.
Whether by design or error, Trump appeared to suggest that serious negotiations with China are over. With a China deal already in his pocket, he aggressively touted his desire to place a substantial tariff on European auto exports – even if that plunges the U.S. and EU into a bitter tariff conflict.
Given that auto exports are the lifeblood of a fragile eurozone economy and that the EU is the second-largest economic area (ahead of China), the stock market impact could be substantial. And unlike the dispute with China, it would see the U.S. target one of its closest allies.
With all this going on, U.S. Treasury Secretary Stephen Mnuchin’s admirable efforts to sell the “tax cuts 2.0” storyline fell by the wayside.
Concerns about another round of cuts ballooning the government deficit may be subduing the stock market enthusiasm this time around.
On a day where the bulk of the Dow 30 was struggling in the red, a beleaguered Boeing (NYSE: BA) surprised investors with an impressive 2.6% rally.
This was a much-needed bounce for the U.S. aerospace stock, which had already fallen more than 5% in 2020. Investors may be bargain hunting, as there wasn’t much obvious good news, with S&P Global recently placing Boeing’s credit rating on negative watch.
Apple (NASDAQ: AAPL) was able to limp slightly higher (+0.5%), defying a rough day for companies with retail exposure in China. Nike (NYSE: NKE), for example, plunged over 1.25%.
Intel (+1.5%) continued to rally ahead of its earnings release.
Travelers (NYSE: TRV) was the dog of the Dow, suffering a massive 4.75% loss after its earnings report raised concerns about lawsuit costs.