| Monday's Headlines 1. US markets sell off as DJIA goes negative for 2020 on coronavirus concerns 2. Sell off hits travel, leisure, apparel, and food stocks 3. Small biotech firm spikes on coronavirus treatment hopes 4. Investors may be overly optimistic Markets Closed
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Markets Today The selling continued where it left off on Friday as fears of the coronavirus gripped investors around the world. The Nikkei sold off 2%, while the DAX and the CAC 40 experienced losses around 2.7% each. The DJIA fell for the fifth trading day in a row today, falling the most in one day since October and is now negative for 2020. The last time the index was down for five straight days was in early August when the U.S.-China trade war escalated. Since Jan. 21, the Dow has plunged about 700 points as fears around the deadly coronavirus deepened.
Gold prices spiked as investors sought safety in the precious metal. Travel stocks, including airlines and hotels with exposure to China, continued to sell off amid fears that the virus, which has claimed 81 lives and infected over 2800 people to date, continues to spread. But it wasn't just travel stocks that were infected by the selling. Retailers and restaurant stocks with exposure to China were also impacted. (See below).
Headlines:
 chart courtesy YCharts
A High Degree of Exposure Very few stocks made it through the day unscathed. There were outliers like Beyond Meat (BYND), which popped nearly 4% as Denny's Restaurants said it will expand its Beyond Meat offerings this year. But if a company generates a lot of its sales from China, like many multinationals do these days, it was on the "For Sale" rack today, and for the past 5 days.
Shares of YUM China (YUMC) were among the hardest hit, and have fallen nearly 16% since last Tuesday. It sub-licenses popular U.S. restaurant chains like KFC, Pizza Hut, and Taco Bell, and operates Chinese chains like East Dawning, Little Sheep, and Coffii. Shares of Estee Lauder (EL) and Nike (NKE), which both generate 17% of their sales from China, are also sharply lower. Starbucks (SBUX), which generates 10% of its sales and 15% of its operating income from China, according to analysts, was also hit hard. Starbucks reports quarterly earnings on Wednesday, so it will be important for the popular coffee chain to talk about the impact of the coronavirus on its business.
But - as often happens during events like this, a few companies get singled out by some investors as potentially benefiting from the crisis and see their shares catapulted higher. Such is the case with Vir Biotechnology (VIR), a $2 billion market cap bio tech firm which said last week that its monoclonal antibodies were effective in treating MERS and SARS, and may be able to treat coronavirus. Mind you, it hasn't proven anything yet, but speculators have jumped on the stock, sending it up 57% in the past 5 sessions.
Remember - it's just speculation, and just because some money is chasing the stock, it doesn't mean you have to. This happens all the time.  Sentiment Check While the coronavirus has been top of mind for the past week, there has also been an increasing drumbeat that stocks are due for a pullback given the run we saw in 2019 and excessive valuations. The problem may be that investor optimism has been heading higher just as global risks have increased. LPL's Investment Strategist, Ryan Detrick, outlined the risks with the market indicators to keep an eye on regarding investor sentiment.
chart courtesy AAII  Put simply, investors may be behaving overly optimistically given market conditions. As this investing sage would say, "Be fearful when others are greedy, and be greedy when others are fearful." 
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(chart courtesy YCHARTS)  Biotech firm Moderna rose today after it received a grant from the Coalition for Epidemic Preparedness Innovations to help develop a vaccine against the new coronavirus. Industrial firm Arconic rose even though it reported weaker-than-expected earnings, because it also announced it was going to split into two companies, each selling a different kind of aluminum components.  Fear of the new coronavirus drove down entertainment and hospitality firms with operations in China such as Wynn Resorts, Las Vegas Sands, and Royal Caribbean Cruises, which has cancelled cruises to China. Coronavirus fears have also lowered oil prices due to an expected drop in demand from less travel. This has put pressure on a number of energy companies like drilling services provider Transocean. The mild winter has continued to hold down natural gas prices leading to declines in natural gas firms like Range Resources. Word of the Day A put option is a contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a pre-determined price within a specified time frame. The specified price the put option buyer can sell at is called the strike price.  Today in History January 27, 1967 Today in 1967, the U.S., U.K., and Soviet Union signed the Outer Space treaty, which banned the placement of nuclear weapons in space. The treaty also stated that operations on the moon and all other celestial bodies must be exclusively for peaceful purposes, thereby banning military bases or weapons testing facilities on the moon and elsewhere in the solar system (besides Earth). The treaty has come into focus more recently with the creation of the U.S. Space Force. Space militaries may be legal so long as they do not bring nuclear weapons into space or establish bases on the moons or any other moons and planets, however, the legal question isn't completely settled.
Source: https://2009-2017.state.gov/t/isn/5181.htm
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Monday, January 27, 2020
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