Welcome back, volatility

02/03/20
  • Coronavirus fears linger, stocks retreat
  • Fed stands pat, GDP in-line, AMZN, TSLA crush earnings
  • This week: Jobs report, plus GOOGL, DIS, TWTR earnings

Say hello to the first pullback of 2020.

After more than three months of uneventfully bullish trading, the stock market last week suffered its biggest pullback since early October amid coronavirus-fueled volatility.

Although the S&P 500 (SPX) initially fought back after last Monday’s 1.6% drop, Friday’s 2.1% sell-off  pulled the rug out from under the rebound. It capped the SPX’s worst week since early August, although the index remained less than than 3.5% below its all-time high:

Chart 1: S&P 500 (SPX), 12/10/19–1/31/20. S&P 500 (SPX) price chart. Late-month pullback.

Source: Power E*TRADE


The move: After tumbling more than 26% intraday on Friday as coronavirus fears rattled the market, Chinese coffee chain Luckin Coffee (LK) roared back more than 21% to close down only 10.7% at $32.49.

The number: +10.3%, Tesla’s (TSLA) rally last Thursday, the day after it crushed its earnings and revealed the company’s first annual profit. The week also featured big beats from Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), McDonald’s (MCD), and Starbucks (SBUX).

The headline: The World Health Organization (WHO) declares the coronavirus a global health emergency.

The fine print: WHO also stated it had confidence China would be able to contain the virus, and did not recommend taking any measures that would “unnecessarily interfere” with international trade or travel.1

The quote: “[Airline] traffic tends to recover relatively quickly after a pandemic outbreak…[M]oreover, there does not seem to be a clear lasting impact on the stocks.” Canaccord Genuity analyst Ken Herbert on the impact of viral outbreaks on airline stocks.2

The scorecard: As of Friday, the Nasdaq 100 (NDX) was still in the plus column for the year, but the SPX and the Dow (DJIA) joined the Russell 2000 (RUT) in the YTD red zone:

US stock index performance table for week ending 1/31/20. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE


Sector roundup: The strongest S&P 500 sectors last week were utilities (+0.9%), consumer discretionary (+0.2%), and consumer staples (-0.7%). The weakest sectors were energy (-5.6%), materials (-3.7%), and health care (-3.2%).

Highlight reel: Acceleron Pharma (XLRN) lived up to its name on Tuesday, jumping 50% to $79.39 on positive trial results of its hypertension drug. On Friday, Word Wrestling Entertainment (WWE) fell -22% to $48.88.

Futures action: Crude oil has been one of the biggest victims of the coronavirus scare. March WTI crude oil (CLH0) dropped another 4.7% last week, falling close to $51/barrel and approaching the support level discussed in “Initial impressions, trading reflections.” February gold (GCG0) closed Friday at a new contract high near $1,587/ounce.

Last week's biggest futures up moves: February VIX (VIG0) +14.8% and February Bitcoin (BTCG0) +10.5%. Last week's biggest futures down moves: March Coffee (KCH0) -6.8% and March Copper (HGH0) -6.3%.

Coming this week

Alphabet (GOOGL), Disney (DIS), Twitter (TWTR), and Uber (UBER) are just some of the highlights of another busy week of earnings:

●Monday: Alphabet (GOOGL), Check Point Software (CHKP), Sysco (SYY), NXP Semiconductors (NXPI)

●Tuesday: Walt Disney (DIS), Gilead Sciences (GILD), Clorox (CLX), Chipotle (CMG), Ralph Lauren (RL), ConocoPhillips (COP), Match Group (MTCH), Snap (SNAP), Bio-Techne (TECH), Allstate (ALL)

●Wednesday: Spirit Airlines (SAVE), Paycom Software (PAYC), Boston Scientific (BSX), Merck (MRK), Yum China (YUMC), General Motors (GM), GrubHub (GRUB), Qualcomm (QCOM), T-Mobile (TMUS), Peloton (PTON), Spotify (SPOT)

●Thursday: Dunkin' Brands (DNKN), Bristol-Myers Squibb (BMY), Baidu (BIDU), Yum! Brands (YUM), Kellogg (K), Estee Lauder (EL), Tyson Foods (TSN), Penn National Gaming (PENN), Uber (UBER), Pinterest (PINS), Twitter (TWTR), Philip Morris (PM), IQIYI (IQ)

●Friday: AbbVie (ABBV), Cboe Global Markets (CBOE)               

Friday’s the big day—the jobs report—but don’t overlook the manufacturing data and other top-of-month numbers on this week’s economic calendar:

●Monday: Markit Manufacturing PMI, ISM Manufacturing PMI, Construction Spending

●Tuesday: Factory Orders

●Wednesday: ADP employment report, Trade Balance, Markit Services PMI, Markit PMI Composite  

●Thursday: Q4 Nonfarm Productivity (prelim), Q4 Unit Labor Costs (prelim) 

●Friday: Employment report, Wholesale Inventories, Consumer Credit

Go to the E*TRADE market calendar (login required) for an up-to-date earnings schedule and a complete list of splits, dividends, IPOs, and economic reports. The Active Trader Commentary also lists earnings announcements, IPOs and economic report times each morning.

One down, 11 to go. Last week’s sell-off broke January’s three-year winning streak, but it was in keeping with its less-bullish trend over the past two decades—as well as its general tendency to rally early in the month and give back gains later (see “New Year’s evolutions”).

Which brings us to February, long considered one of the weaker months of the year, with some reason: Since 1960, the SPX has closed out February with a gain just 53% of the time (tied for third-worst month) and has an average return of 0.2% (fifth-worst).

Recently, though, that profile has become more bullish: February has been an up month eight of the past 10 years (January has been positive only six of the past 10) and has an average return of 2.3%— the best gain of any month of the year.

 

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1 CNBC.com. WHO declares China coronavirus that’s killed more than 200 a global health emergency. 1/30/20.

2 MarketWatch. Airline stocks face 'substantial' risk from coronavirus but not lasting weakness, analyst says. 1/28/20.

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