By Barbara Kollmeyer, MarketWatch
AFP via Getty Images
Investors are facing a new worry on their return from a long weekend: the potential that China’s coronavirus will spread massively during a big upcoming national holiday.
“The worry is this is another SARS, an outbreak that saw thousands infected and led to hundreds of deaths. It also led to billions of dollars of losses and hit Chinese GDP growth by up to 1 percentage point,” said Neil Wilson, chief market analyst at trading platform Markets.com.
A repeat of that would mean the International Monetary Fund’s latest and less-optimistic forecasts not standing up and a sharp contraction for many leading indicators of the global economy, he told clients. While it’s probably too soon to panic, a pandemic scare may be an excuse for some investors to cash in on a bullish start to the year — the S&P 500 managed its sixth record close of 2020 on Friday.
That leads us to our call of the day , from Saxo Bank’s head of equity strategy Peter Garnry, who is flashing a short-term warning about a stock selloff, especially for technology names, which have led 2019’s gains.
“The acceleration that we have seen seems quite similar to what we saw in January 2018,” Garnry told MarketWatch in an interview. During that month, the S&P climbed 5.6%, then dropped 3.9% and 2.7% in February and March 2018 respectively.
Mimicking similar moves in the run-up to that selloff, he notes “epic short squeeze” in shares of electric-car maker Tesla /zigman2/quotes/203558040/composite TSLA +6.36% , for example. That refers to a stock spiking because bearish investors, who sold borrowed shares as they bet on a fall, have to buy them back at higher prices.
And then he sees the FANG (Facebook /zigman2/quotes/205064656/composite FB +2.83% , Amazon /zigman2/quotes/210331248/composite AMZN +1.72% , Netflix /zigman2/quotes/202353025/composite NFLX +2.19% and Alphabet-parent Google /zigman2/quotes/202490156/composite GOOGL +2.36% ) + Index /zigman2/quotes/210598074/delayed XX:NYFANG +2.81% “accelerating at an unprecedented pace showing clear signs of frothy behavior.” Note Netflix reports after the close.
As well as this, investors aren’t buying much downside protection for stocks, Garnry said. But on the bright side, he said when this selloff gets out of the way, equities will probably keep marching higher.
The Dow /zigman2/quotes/210407078/delayed YM00 -0.16% , S&P /zigman2/quotes/209948968/delayed ES00 -0.21% and Nasdaq /zigman2/quotes/210219788/delayed NQ00 -0.24% are pulling back from record highs. That’s after a weak day for Europe /zigman2/quotes/210599654/delayed XX:SXXP +0.44% and as most Asia stocks /zigman2/quotes/210598127/delayed CN:SHCOMP -1.21% fell amid concerns about the coronavirus. A Moody’s downgrade for Hong Kong didn’t help. Oil prices /zigman2/quotes/209723049/delayed CL00 +0.03% are also under pressure.
Anxieties around a SARS-like viral outbreak are running high as the death toll reaches six with nearly 300 infected, and a Chinese official confirmed human-to-human transmission. Fears that the coronavirus virus may spread quickly come as China’s Lunar New Year, which involves mass traveling, is due to kick off on Saturday.
Our chart shows stocks in the firing line on Tuesday — China Eastern Airlines /zigman2/quotes/205483076/composite CEA +2.96% , China Southern Airlines /zigman2/quotes/206691352/composite ZNH +1.65% , airline Cathay Pacific /zigman2/quotes/203532437/delayed HK:293 +1.51% and casino operator Wynn Macau /zigman2/quotes/200973447/delayed HK:1128 -2.27% , to name a few.