Markets hate uncertainty, and that’s exactly what they’re dealing with as coronavirus spreads. Fears got exacerbated Friday as investors looked ahead to Monday’s re-opening of Shanghai stocks after more than a week off.
A lot of it comes down to what might happen this weekend and Monday. It’s hard to get excited about holding long positions on Friday if you’re worried China’s stock market might lay an egg late on Sunday U.S. time when things get rolling across the Pacific. It looks like many people didn’t want to potentially catch a falling knife. The virus scare is having a real effect on airline, cruise line and hotel stocks, especially.
Selling rolled along pretty steadily throughout the day, without too much buying interest showing up at the lows. There was never a period of the session where it looked like things might be coming back, but on the other hand it didn’t look like a panic, just a steady flow of selling and no buyers.
By the end of the session, every major index had given up 1.25% or more, with the Dow Jones Industrial Average (INDEXDJX: .DJI) falling into the red for the month. Every sector except Consumer Discretionary—which got a lift from Amazon.com, Inc. (NASDAQ: AMZN) earnings—finished in the red. Utilities was the second-best performer. Energy finished at the very bottom with more than 3% losses.
Sunday night looms large. Remember to keep a close eye on U.S. futures trading in the evening right around the time Shanghai opens. People appear to expect sharp losses in China, but Friday’s U.S. sell-off might have been one of those “sell the rumor” scenarios. In other words, people seem prepared for a huge sell-off, so something less than a worst-case-scenario in Shanghai could get viewed as constructive. As Yogi Berra once said about baseball: “You never know.”
Berra also said you can see a lot just by watching. Try and remember that this weekend and watch for virus developments. News about more infections and deaths obviously would be unfortunate from a human perspective, but also might get people even more nervous around Wall Street. The market actually rallied late Thursday after the World Health Organization (WHO) declared the virus an emergency, maybe out of hopes the WHO might take more aggressive measures. Any action on their part as well as any border closures or airline flight cancellations could play into the mood by Monday.
Risk-off might remain the tone until things start improving on the virus front. …
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