Daily Markets: The Dip Drops - Dramatic Days

Today's Big Picture

The dip keeps dipping as all the major equity indices fell further today, with China taking the lead. The Shenzhen Composite lost 2.7%, The Shanghai 0.83%, Hong Kong's Hang Seng 0.9%, Japan's Nikkei 225 0.8%, and Australia's S&P/ASX tumbled 2.3%.

Most all of the major European equity indices were solidly in negative territory by midday trading, with the pan European Stoxx 600 down 1.1% and Germany's DAX down 1%. US equity futures all point to a drop at the open.

Yesterday the S&P 500 lost over 3% for the second consecutive day. After the close, the Nasdaq 100 was 9.1% below its all-time high - nearing correction territory - the Nasdaq Composite down 8.7%, the S&P 500 down 7.6%, and the Dow Jones Industrial Average down 8.4%. The CBOE S&P 500 Volatility index has risen 94% since the start of the year and the iShares 20+ Year Treasury Bond ETF (TLT) is up 11.5%, outperforming the S&P 500 by nearly 20%.

The yield on the US 10-year Treasury bond fell to an all-time low yesterday, dropping down to 1.31% intra-day and closed at 1.328%. Keep in mind that the Federal Reserve's benchmark overnight federal-funds rate is set between 1.5% and 1.75%.

Unless you've been hiding under a rock, you've been hearing a lot about the coronavirus, which is dominating investors' minds this week and driving down equity indices around the world.

• Yesterday the first case in Switzerland was reported.
• France just reported its second death and Greece its first case.
• In Italy, infections are being reported outside of the original epicenter in the north, with some as far south as Sicily. There were only three known cases last Friday morning, just five days ago. Today there are 357 confirmed cases, 12 deaths, and this morning, four children were the first cases reported among minors. The Prime Minister is calling for calm.
• The Bank of Japan is asking the nation's major banks how prepared they are for the outbreak to worsen.
• The Center for Disease Control (CDC) yesterday stated that the virus's spread in the US is inevitable and warned that the public should prepare for a potential pandemic.
• The mayor of San Francisco declared a state of emergency despite no cases having yet been reported there.

There is no doubt that this is going to impact the global economy, the only question is just how much growth, earnings, and cash flow will weaken and how that will affect a world awash in levels of debt never before seen. We are seeing equity and bond markets repricing in light of this new reality.

Data Download

While much of the news remains riveted on this virus, data reporting continues; however, there isn't a whole lot today to keep attention away from the Armageddon images on social media.

Australia's Construction Work Done for Q4 declined more than expected, down 3% from the prior 0.4% increase, well below expectations for a milder contraction of 1%.

Consumer Confidence in France remained at 104 despite expectations for a drop to 103 in February. TBD if the rush for face masks and disinfecting wipes changes this in March. The number of people registered as unemployed decreased by 28.1k from the previous month to 3.265 million in January 2020, the lowest level since August 2013.

Retail Sales in Mexico declined more than the expected, contracting 0.4% QoQ in December from Novembers 1.7% increase, versus the -0.3% expected. Year-over-year retail sales grew by 3.2%, better than the expected 2.2%.

Later today in the US we'll get the usual weekly EIA energy data, weekly MBA mortgage data, new home sales for January and speeches from the Federal Reserve's Kaplan and Kashkari.

Stocks to Watch

Looking to further bulk up against Amazon (AMZN), Walmart (WMT) is launching Walmart Fulfillment Services, a service that will allow third-party vendors to hire the big-box retailer to store, pack and ship items.

Beyond Meat (BYND) notches another win as the Beyond Meat sandwich will be available at Starbucks' (SBUX) nearly 1,200 coffee shops across Canada on March 3. The sandwich will include cheddar cheese and egg on an artisanal bun. Not to be outdone, Impossible Foods announced its plant-based meats will be available across Walt Disney (DIS) theme parks and cruise lines come February 28.

Shares of Lowe's (LOW) are getting hit with a company shovel this morning as the company's fourth-quarter results missed expectations for revenue and same-store sales. The company's EPS for the quarter topped the Wall Street consensus, but that upside was offset by same-store sales of 2.5% vs. the expected 3.6%.

Alcoa (AA) warned the coronavirus outbreak has had an effect on alumina supply. Meanwhile, transportation problems and alumina shortages in China are driving up the country's alumina prices as well as alumina prices around the world.

Cruise operating Royal Caribbean (RCL) says it has canceled 30 cruises in Southeast Asia due to the outbreak and has also modified itineraries in the region.

Diageo (DEO) shared it expects the coronavirus outbreak to hit its 2020 organic net sales by £225-£325 million, but cautioned the range could change.

Data published by the Recording Industry Association of America (RIAA) showed streaming accounted for 80% of recorded-music sales in 2019. The findings show 2019 revenue hit $8.8 billion, which puts streaming ahead of the entire US recorded music industry in 2017. We can't argue at all with the convenience of having the music you want when you want it on the device of your choosing no matter where you are. While music streaming is as competitive as the video streaming market, companies that will catch a favorable following the RIAA report include Apple (AAPL), Spotify (SPOT), Alphabet (GOOGL), Amazon (AMZN), and Sirius XM (SIRI).

Walt Disney (DIS) announced that Chairman and CEO Bob Iger would relinquish the CEO role to Bob Chapek effective immediately. Chapek has been Chairman of the company's Parks, Experiences and Products business. Iger is expected to remain as Chairman through at least 2021.

Salesforce (CRM) also announced a departing executive as co-CEO Kevin Block stepped down from the company. That news weighed over the company's quarterly earnings report that bested Wall Street expectations and saw a boost to its revenue guidance.

Shares of WW International (WW) traded higher last night after delivering 2020 guidance that was better than the consensus forecast. The company sees 2020 revenue "approaching" $1.6 billion vs the $1.5 billion consensus and with EPS in the range of $2.15-$2.40 vs. the $2.15 consensus. Exiting the company's fourth-quarter, it had 4.2 million subscribers, which has gone on to top 5 million.

Shareholders at Craft Brew Alliance (BREW) approved the proposed acquisition of the company by Anheuser-Busch InBev (BUD), which is slated to close later this year.

After hurtling higher of late, last night Virgin Galactic (SPCE) reversed course following its December quarter report that included a larger than anticipated loss. The company shared it received 7,957 registrations of interest — we are scratching our heads as to how that ties to actual revenue — but gave no details on its spaceflight timetable.

While Planet Fitness (PLNT) may not like it, some investors were likely grunting in response to the company's quarterly earnings that beat expectations last night but also contained guidance that fell short of expectations. System-wide same-store sales increased 8.6%. By segment, franchisee-owned same-store sales increased 8.8%, and corporate-owned same-store sales increased 5.8%. The company's guidance calls for 2020 EPS near $1.84 vs. the $1.90 consensus.

Shares of online dentistry company SmileDirectClub Inc. (SDC) fell dramatically in response during after-market trading last night following greater-than-expected loss and revenue that missed expectations.

There will be another sea of earnings reports to be had after US equity markets close this afternoon. The ones most likely to catch investor attention include those from Booking Holdings (BKNG), Box (BOX), CoreLogic (CLGX), Cutera (CUTR), Etsy (ETSY), Hostess Brands (TWNK), L Brands (LB), Square (SQ), and Teladoc (TDOC). For more details on these as well as other upcoming earnings reports, readers should visit Nasdaq's earnings calendar page.

On the Horizon

• Upcoming IPOs:
  • Genetics medicines company Passage Bio (PASG) is looking to price $7.4 million shares in the range of $16-$18.
  • For a complete list of upcoming IPOs by month, please visit the Nasdaq IPO Calendar.
• Dates to mark:
  • March 3: 2020 Presidential Election Super Tuesday
  • March 5-6: OPEC meeting
  • March 12: European Central Bank rate decision
  • March 17-18: Federal Reserve FOMC meeting
  • April 28-29: Federal Reserve FOMC meeting
  • April 30: European Central Bank rate decision
  • May 12-14: Google I/O Developer Conference
  • May 25: US stock market closed for Memorial Day

Thoughts for the Day

"Light travels faster than sound. This is why some people appear bright until you hear them speak." - Alan Dundes

Disclosures

• Walmart (WMT) is a constituent in Tematica Research's Thematic Dividend All-Stars Index.
• Planet Fitness (PLNT) and WW (WW) are constituents in Tematica Research's Cleaner Living Index.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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