WEEKEND WRAP: Coronavirus Affecting Markets; Turbulent Week Ahead; Oil Already Whacked

Last week, as the the wealthy and infamous gathered for the annual World Economic Forum (WEF) in Davos, Switzerland, markets were focusing on more compelling domestic and international issues, primarily, the impeachment trial of President Donald J. Trump and the outbreak of the deadly coronavirus which has spread outward from its source in mainland China, now reaching around the world, particularly in the Northern Hemisphere, where nearly all the developed nations are anchored.

While the impeachment hearings were less impactful, being that the first few days of the trial consisted of one session for rule-making and three days of Democrat managers from the House of Representatives reiterating their tired claims from months of investigations stemming from a single phone call, the spread of a killer virus caught everybody's attention.

The number of deaths officially reported by the Chinese government grew from 16 on Wednesday to 23 to 41 to 56 by Sunday. As the week progressed, the number of reported cases grew considerably - by Sunday, nearly 2,000 in China alone - along with the number of countries discovering outbreaks. By Sunday morning, instances of reported cases had been registered in France, South Korea, Japan, Nepal, Thailand, Singapore, Vietnam, Taiwan, Australia, and the United States.

Similar to the SARS (severe acute respiratory syndrome) outbreak, which killed more than 750 people in 2002-2003, the threat is that this particular virus is spreading at a much faster rate as transmissibility is increasing.

By Monday morning, the toll will likely exceed 90, but there's widespread speculation that China has been and continues to understate not only the number of cases reported, but also the death toll.

This is the kind of thing some students of the dark science of economics might consider a "black swan," an unusual event or occurrence with a low probability that nobody sees coming. Already, the coronavirus outbreak has affected markets, but none more profoundly than oil. With travel bans in effect already in some Chinese cities and many presumably taking precautions to avoid crowds and people who may be infected, the world's second-largest user of oil and distillates is bound to experience a sharp demand decline that will affect prices globally.

WTI crude fell, over the course of the week, from $58.58 per barrel to $54.19, a decline of 7.5%. Brent dropped from an opening at $65.65 on Monday to $59.85 by week's end, losing nearly nine percent.

Stocks were also hit, as increasingly dire stories continued to mount over the course of the week, limiting upside on all exchanges, and squelching rallies on Tuesday, and especially in the US on Friday, when the Chinese government announced the rising death toll and cancellation of many Lunar New Year festivities, the biggest holiday in the country.

China, already on the brink of an extended financial downturn, saw severe damage to equity markets.

If the coronavirus continues to spread to other countries and becomes a pandemic, declines on the major indices (the Dow was down for the fourth straight day as of Friday) could turn what appeared as a minor fluctuation into an avalanche. Limiting movement, be it out of fear or by government dictates, would seriously hamper economic activity anyway, and, if the contagion becomes global in nature, which it appears to be doing, the effect may be long-lasting.

So, that's how normal operating markets turn into dungeons of doom. There is no silver lining, other than, you guessed it, silver and gold, both of which turned in the opposite direction from stocks, both tumbling on Tuesday but gaining the remainder of the week. Gold finished at $1571.60 per ounce; silver closed out the week at $18.10 per ounce. There is likely to be a further, faster advance in precious metals should the virus continue to spread.

With an FOMC meeting up next week (January 28-29) bonds saw high demand, moving interest rates on treasuries to their lowest levels since October, 2019. The 10-year-note closed out the week at 1.70% yield, with the 30-year bond closing at 2.14%.

Also upcoming in the week ahead, a slew of earnings reports, many of them notable as most will be for the fourth quarter of 2019 and the full year.

On Monday, homebuilder D.R. Horton (DHI) and telecom Sprint (S) get the earnings parade started. A loaded Tuesday has Lockheed Martin (LMT), 3M (MMM), Phizer (PFE), United Technologies (UTX), Nucor (NUE), and PulteGroup (PHM). Apple (APPL) and eBay (EBAY) report after the close.

On Wednesday, Dow components Boeing (BA), AT&T (T), and McDonald's (MCD) present, along with Mastercard (MA), General Electric (GE), and Dow Chemical (DOW). Tesla (TSLA), Microsoft (MSFT), Facebook (F), and PayPal (PYPL) report after the close. Thursday's offerings include some titans. Coca-Cola (K), UPS (UPS), and Verizon (VZ) report prior to the opening bell. Amazon (AMZN) and Visa (V) are up after the close.

Prior to Friday's market open, ExxonMobil (XOM), Chevron (CVX), and Caterpillar (CAT) close out the earnings deluge.

It's going to be a busy week with plenty of engaging, diverging stories. In case that's not enough, the impeachment trial could conceivably wrap up by Friday, possibly sooner, the Super Bowl is Sunday, February 2nd, and the first presidential primary, the Iowa caucus, convenes on Monday, February 3rd.

If the coronavirus continues to spread, it's not likely to slow down, so this coming week could be an opportunity to take profits and/or shed losers before markets get any ideas about tanking. Depending on how severe the virus becomes, how quickly and how far it spreads, appropriate defensive actions may be entertained.

With stocks close to all-time highs, there's hardly a case to be made for buying at this point, which, in itself may provide good enough reason for some spirited selling.

At the Close, Friday, January 24, 2020:
Dow Jones Industrial Average: 28,989.73, -170.36 (-0.58%)
NASDAQ: 9,314.91, -87.57 (-0.93%)
S&P 500: 3,295.47, -30.07 (-0.90%)
NYSE: 13,978.47, -123.57 (-0.88%)

For the Week:
Dow: -358.37 (-1.12%)
NASDAQ: -74.03 (-0.79%)
S&P 500: -343.15 (-1.03%)
NYSE: -123.57 (-0.8*%)

FAANGs, NASDAQ Under Assault as Investors Book Profits

Profit-taking in tech stocks continued on Monday as high-flying, high-p/e companies known affectionately as the FAANGs (Facebook, Apple, Amazon, Netflix, and Google) were subjected to relentless, high-volume selling.

For the record, here's how these tech darlings fared on Monday:
Facebook (FB) 171.47, -3.63 (-2.07%)
Apple (AAPL) 169.80, -1.25 (-0.73%)
Amazon (AMZN) 1,133.95, -28.40 (-2.44%)
Netflix (NFLX) 184.04, -2.78 (-1.49%)
Alphabet (Google, GOOG) 998.68, -11.49 (-1.14%)

General holders of these stocks are not yet alarmed over the losses which began a week ago, following the last-gasp ramping over Black Friday and Cyber Monday, because the companies have been among the best performers since January.

What is apparent is that investors are taking profits made in these stocks - none of which, other than Apple, offers dividends - and investing largely in Dow companies, all of which provide dividends to shareholders.

There's nothing unusual about what analysts typically call "sector rotation," except that the movement is quite pronounced. The S&P and Dow have outperformed the NASDAQ for six straight sessions.

With the markets less than two hours from the opening bell on Tuesday, futures are diverging wildly, with Dow futures up in the range of 130 points, while NASDAQ futures are falling by 90 points or greater.

At the Close, Monday, December 4, 2017:
Dow: 24,290.05, +58.46 (+0.24%)
NASDAQ: 6,775.37, -72.22 (-1.05%)
S&P 500: 2,639.44, -2.78 (-0.11%)
NYSE Composite: 12,634.89, +20.33 (+0.16%)

Dow at New Record Close, NASDAQ, S&P Down, Apple Beats, Revenues In-Line

New home sales for June will be out tomorrow at 10:00 am EDT. This follows Monday's release of existing home sales data which was lower than June a year ago.

Also out tomorrow, prior to the bell, are earnings from Boeing (BA), which is trading near all-time highs.

Apple (AAPL) somewhat surprised markets after hours, beating eps estimates of 7.32 per share with a 7.47 show. Revenues were basically in-line, at 35.30 billion, on estimates of 35.02 billion. I-phone sales were well ahead of everyone's estimates and is a real driver for the company, even though same quarter earnings last year were 9.32. Growth is slowing, but Apple is still mightily profitable. As an investment, it may not be such a great performer going forward, much of its growth having been due to founder, Steve Jobs, who passed away October 5, 2011. Apple must stop pretending and create new and exciting products, not an easy task.

Incidentally, Apple's stock leapt in after-hours trading, just seconds before the earnings release, in yet another example of how the market is rigged to insiders and dangerous for individual investors.

For an idea as to how out-of-whack the markets are, consider the new highs to new lows today, at 536 new highs to 38 new lows. That's an extreme reading - sure, we're at all-time highs - but that's when things usually turn, and turn this market will, though probably without much notice. Keep powder dry.

Dow 15,567.74, +22.19 (0.14%)
NASDAQ 3,579.27, -21.11 (0.59%)
S&P 500 1,692.39, -3.14 (0.19%)
NYSE Composite 9,659.63, +9.04 (0.09%)
NASDAQ Volume 1,577,547,250
NYSE Volume 3,369,484,500
Combined NYSE & NASDAQ Advance - Decline: 3435-3033
Combined NYSE & NASDAQ New highs - New lows: 536-38
WTI crude oil: 107.23, +0.23
Gold: 1,342.80, +6.80
Silver: 20.44, -0.064

Numbers Racket: Greece, Euro, Apple, Transports and 100 Dow Points

Let's get real here.

Raise your hand if you think Greece is NOT going to default.

Very well. Maybe the rest of you with hands on hips or in pockets will appreciate the news out of Europe this morning, which somehow managed to pump futures toward a strong positive opening.

What's that? Even though Dow futures were up more than 80 points before former Treasury Secretary Hank (martial law) Paulson appeared on CNBC for the usual softball interview and were up 47 points just seconds before the open, the Dow only managed an initial gain of... hmmmm, less than 20 points.

Eurozone's 17 nations' (non) growth rate for the 4th quarter of 2011 was -0.3, the only countries showing gains in GDP growth being France and Slovakia.

Five countries in europe are already in recession. No surprise here, as Greece, Belgium, the Netherlands, Portugal and Italy have experienced two consecutive quarters of GDP decline. The one country everyone has an eye on is Germany, where output for the quarter fell by 0.2%, because the Germans have been the only country in the region showing any sign of elasticity and ability to weather the financial storms.

However, the rest of the Eurozone is dragging Germany's usually strong industrial sector down with the rest of the continent, a development that could prove disastrous as the EU plods through a troubling 2012.

Stocks took a spanking today in the US after the aforementioned recession news and then the communique out of Brussels from the esteemed EU finance ministers (a Baptist minister, a Catholic priest and an EU finance minister walk into a bar... oh, never mind) reminded the assembled money watchers worldwide that they are experts at procrastination and posturing.

While yesterday's commitment letter from Greek conservative leader Antonis Samaras stated that he would go along with the proposed - and passed by the Greek parliament - austerity measures, the potential future leader of Greece (give him about 6 months before he is bought off and retires, if he even wins the April race for Premier) contained a small caveat, saying he might reconsider, once, of course, the authorities deliver the 130 billion (or maybe it's more like 202 billion) Euros promised by the supra-government of the EU.

What happened today could best be described as controlled demolition. While the Dow was subsumed, hovering from 15 to 35 points in the red, the NASDAQ was wildly positive, though 90% of the gain was due to just one stock, Apple (APPL), which exploded in a number of ways on the day.

First, Apple rocketed to an all-time high of 526.29, but closed the day at the somewhat pedestrian level of 497.67. That's a pretty big round-turn, even for a stock with such a heady valuation. The decline was magnificent, falling 20 points in just the noon hour, and stumbling to a nearly 12-point loss in the remainder of the day. Volume was more than four times the average daily volume (12 million shares) at 53,457,212.

But Apple was just the NASDAQ story. The Dow charted its own path, guided by the Euro-dollar trade. The Euro slumped and finished below the psychotic 131 level, a number which is absolutely meaningless unless you're swapping currencies or considering travel to the doomed continent. But, stocks have followed the Euro-Dollar relationship like clockwork this year. Euro up, US stocks up, with the converse also true. The real value of the ephemeral Euro is all in the mind and to which equally worthless paper currency to which you compare it. If one would be so bold to compare it to some commodity - say, gold - well, a Euro won't buy you a single grain and it's gotten worse throughout its 11+ year life with each turning of the calendar.

So, the Dow set down at the close with its worse loss of 2012, which is not so much a surprise, being that the index (and all the other majors) has overheated in what has been an unusually-warm winter. But the Dow could just not surrender 100 points on the day, despite it being down 125 points at its worst level and down 108 points only one minute prior to the close. Perhaps that number (-100) has meaning to some people, but for the rest of us, -97.33 will just have to do.

What is alarming and scary (like Europe isn't enough of a fear factor) is the action in the Dow Transports, which suffered a two percent decline on the day, easily outstripping the widely-followed indices.(please have a gander at the 1 year chart with the 80% down-spike in November)

Another unpleasant thought concerns the timing of this week's reversal of fortune, just two days prior to options expiry, normally the strongest and upward-tilted week of any month in this Ponzi-like market scheme. Today's volume was also quite strong across all indices.

If stocks aren't making gains just prior to options expiry, then something very wrong is happening behind the scenes. It could be as simple as the market being overbought, or waking up to the awful European reality or the threat of war with Iran which looms larger each passing day.

Then again, it could just be that the low level of market participation has the major traders now drooling over each other's lunches. US stocks have been on a tear since October and the time and sentiment are ripe for a nasty correction.

A clue could come the day the Dow closes with a loss of more than 100 points, though that might prove to be a day too late and many billions of dollars short. Today's near-100-point loss should provide more than enough caution to everyone.

Keep a close eye on gold, and especially, silver, which has underperformed for the past two weeks. Any sustained gains in the precious metals should serve notice that there's something big brewing.

Dow 12,780.95, -97.33 (0.76%)
NASDAQ 2,915.83, -16.00 (0.55%)
S&P 500 1,343.23, -7.27 (0.54%)
NYSE Composite 7,998.65, -30.97 (0.39%)
NASDAQ Volume 2,036,710,750
NYSE Volume 4,045,495,750
Combined NYSE & NASDAQ Advance - Decline: 2267-
Combined NYSE & NASDAQ New highs - New lows: 264-23
WTI crude oil: 101.80, +1.06
Gold: 1,728.10, +10.40
Silver: 33.41, +0.06