foxex: Wipeout!

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Friday's Headlines

1. US markets sell off as contagion fears rise

2. DJIA falls 2.1%, wiping out January gains

3. Airline stocks pummeled again as travel restrictions rise

4. Consumers remain unbowed

5. What to expect next week

Markets Closed

Dow
28,256.03
−603.41 (-2.09%)

S&P
3,225.52
−58.14 (-1.77%)

Nasdaq
9,150.94
−148.00 (-1.59%)

VIX
18.84
+3.35 (+21.63%)

Bitcoin
$9,393.85
−$131.65 (-1.41%)

US 10-Yr Yield
1.52
−0.0380 (-2.44%)

Year-to-Date

Dow
28,256.03 -0.99%

S&P
3,225.52 -0.16%

Nasdaq
9,150.94 +1.99%

Russell 2000
1,614.06 -3.26%

Crude Oil
$51.63 -15.29%

US 10-Yr Yield
1.5200 -19.2%

Markets Today

The spread of the coronavirus and fears about containment got investors' attention today, in a big way. The DJIA fell 2.1%, its biggest drop since August when trade-war mania was in full effect. There were a lot of moving parts around the spread and attempts to contain the coronavirus today. Here are some of the major developments:

The U.S. declared the coronavirus a public health emergency within the country.
Delta, American, and United suspended all flights between China and the U.S.
9,692 cases have been confirmed with 213 deaths.
The virus has now spread to 18 countries.
U.S. health officials have quarantined 195 Americans evacuated from Wuhan, China. It's the first time in 50 years U.S. health officials have issued a mandatory quarantine.

This was all just part of the uncertainty that caught up with investors as the first month of the new year and the new decade comes to a close. That January effect we wrote about at the beginning of the year - the one where if January is a positive month for markets, the rest of the year usually follows - forget about it. The S&P 500 will close the month down 0.2%, while the DJIA finishes down 1%. January has been nothing if not volatile, unpredictable, and a little scary. And, oh yeah... it's an election year.

2020...You have our attention.

Headlines:

U.S. consumer sentiment came in marginally above expectations amid strength in the labor market and strong increases in income, according to the Univ. of Michigan.
Tesla (TSLA) shorts are down $5.60 billion in mark-to-market losses in 2020, according to S3 Partners. Short interest is $14.28 billion with 24.58 million shares shorted. S3 expects "sizable short covering" if the stock continues to rally.
World Wrestling Entertainment (WWE) plunged as much as 28% on Friday, erasing more than $1 billion in market value, after Chief Executive Officer Vince McMahon ousted two of the company's top executives. It was WWE's biggest decline in nearly six years, sending the shares to their lowest levels since May 2018.
Reynolds Consumer Products, which makes Reynolds Wrap foil and owns Hefty trash bags, raised around $1.2 billion and priced its IPO at $26 per share.
Chevron (CVX) posted a $6.6 billion loss in the fourth quarter due to $10.4 billion worth of write-offs related to the company's shale gas production sites in Appalachia and deep-water projects in the Gulf of Mexico. In December, the company warned that this charge would be between $10 billion and $11 billion.
Exxon (XOM) earned $5.69 billion in the fourth quarter, down from $6 billion in the same period as weakness in the company's chemicals and downstream divisions, as well as consistently lower oil prices pressured profits. Shares of XOM are at their lowest levels since Oct. 2010.
Shares of Amazon (AMZN) were a rare green patch in today's sea of red. Shares shot up more than 9% in early trading Friday, propelling its market cap to hit $1.02 trillion at the open and causing the stock to hit a new all-time intra-day high of $2,055.72. The stock closed the day up 7.3%. Amazon has joined Apple, Amazon, Google, and Microsoft in the $1-trillion-market-cap club, and it has delivered the best percentage returns of all them over the past 10 years.

chart courtesy YCharts

January in Perspective

As mentioned, January's gains were all erased this week in a flurry of selling. Volatility became a feature of the market with the Volatility Index, or VIX as it is known, rising to just around 19 this month up from 13.78, a gain of more than 37%. The DJIA snapped a five-month winning streak, and came dangerously close to crossing below its 50-day moving average.

chart courtesy YCharts

The 50-day moving average is a technical analysis metric that some traders and investors use. If it rises too high above its 50-day moving average, a stock or index could be considered over-priced. If it falls below, it could be underpriced. January has seen a serious downdraft for the DJIA - much of it coming in the past week as the coronavirus concerns have amplified.

But just to keep things in perspective, the DJIA had a few rough patches in 2019 due to the unpredictability of the trade war with China. And while today's losses were steep, they were middle of the pack given other selloffs over the past year.

chart courtesy YCharts

Super Bowl Kicker

In honor of the big game this weekend between the Kansas City Chiefs of the American Football Conference, and the San Francisco 49'ers of the National Football Conference, we bring you a little fun fact about market performance and Super Bowl winners. Don't allocate your portfolio strategy around this, but by all means, bring it up with your friends and family if you are watching the game. They'll think you are a finance nerd like us. I guess I'll be rooting for San Fran.

chart courtesy LPL Financial

More News:

Chip Stocks May Have Topped Out After Historic Advance

Roku Stock: Sellers in Charge So Far in 2020

3 Apparel Stocks Look Fitting Near Key Support Levels

Here's how different asset classes have been doing year-to-date:

Here are some of the key economic events on the calendar for the week ahead:

Monday February 3

Eurozone Manufacturing Purchasing Managers' Index (PMI) (Jan.)
U.K. Manufacturing PMI (Jan.)
U.S. Institute for Supply Management Manufacturing (ISM) PMI (Jan.)

Tuesday February 4

U.K Construction PMI (Jan.)
U.S. Factory Orders (Dec.)
Chinese Caixin Services PMI (Jan.)
Japanese Services PMI (Jan.)

Wednesday February 5

EU Services PMI (Jan.)
U.S. ADP Nonfarm Employment Change (Jan.)
U.S. Trade Balance (Dec.)
EU Retail Sales (Dec.)
U.S. ISM Non-Manufacturing PMI

Thursday February 6

Reserve Bank of India Interest Rate Decision
German Factory Orders (Dec.)
U.S. Preliminary Nonfarm Productivity (Q4)
Japanese Household Spending (Dec.)

Friday February 7

German Industrial Production (Dec.)
German Trade Balance (Dec.)
Brazilian Consumer Price Index (CPI) (Jan.)
U.S. Nonfarm Payrolls (Jan.)
Canadian Employment Change (Jan.)

Another Busy Earnings Week:
Next week we have another two major social media companies reporting earnings, with Snap (SNAP) reporting on Tuesday, and Twitter (TWTR) on Thursday. In addition, two major entertainment companies report, with media giant Disney (DIS) reporting on Tuesday, and videogame powerhouse Activision Blizzard (ATVI) reporting on Thursday. Both Snap and Twitter will be jostling with both each other and with Facebook for more monthly active users. Activision Blizzard will also be trying to hold onto its own userbase, which has been slipping in recent years. This will be the first quarter in which we can start to see the effect of the launch of Disney+ on Disney's media networks revenue. Check out our earnings previews for more on Snap, Twitter, Disney, and Activision Blizzard.

How Will Chinese Markets React to the Coronavirus?
Mainland Chinese markets were scheduled to be closed for much of this week due to the Lunar New Year. However, the spread of the coronavirus caused the market holiday to be extended all through this week. Markets are expected to open again on Monday, February 3rd. With markets closed over the whole week, it's hard to tell exactly how large an effect the virus will have on the Chinese stock market. However, ETFs that track Chinese firms are still trading and could provide a hint. For example the iShares MSCI China A ETF (CYNA) is down about 9% this week.

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(chart courtesy YCHARTS)

Amazon, which needs no introduction, and consumer products conglomerate Colgate-Palmolive rose today after beating earnings and sales expectations, respectively. Tech conglomerate IBM rose after it announced it was replacing its CEO Ginni Rometty.

Can you smell what the stock is cooking? Apparently it isn't very appetizing, as shares of professional wrestling firm WWE fell precipitously after it lowered its earnings guidance and ousted two of its presidents. Financial services firm Broadridge Financial Solutions fell after announcing substantially lower-than-expected earnings. Streaming TV company Roku fell today after the company said it may be removing FOX apps from its streaming platform.

Word of the Day

Brexit

Brexit is an abbreviation for "British exit," referring to the U.K.'s decision in a June 23, 2016 referendum to leave the European Union (EU).

Today in History

January 31, 2020

Today the United Kingdom officially "Brexited" from the European Union following a close 52%-48% referendum vote to leave the EU in June 2016. While the U.K. is officially out of the European Union, it is now in a transition period during which it must negotiate a new relationship with the EU. During this period, it does not have a say in EU policy, but will still need to abide by EU rules. The U.K. now must negotiate its entire trade relationship with the EU, its largest trading partner, by January 1, 2021, or get an extension by July 1, 2020. If it doesn't, then it will suddenly be subject to a host of rules changes and tariffs as it suddenly falls out of the EU single market and customs union. This scenario, called a "no-deal" Brexit, would likely be significantly damaging to the U.K. economy.

Sources:

https://www.reuters.com/article/us-britain-eu-timeline/timeline-britains-tortuous-journey-in-and-out-of-the-eu-idUSKCN1QH1C8

https://www.bbc.com/news/uk-politics-50838994