US STOCKS: cross-section against the Coronavirus

US STOCKS: cross-section against the Coronavirus

2020-02-26 • Updated

Recently, we have received a message from the CDC Principal Deputy Director Anna Schuchat that the American health authorities are preparing for the Coronavirus hit. The latter, whatever its gravity will be, is inevitable, as per Mrs. Schuchat. In this context, let’s have a look at different sectors of the American stock market to see how they react to this natural disaster so far.

S&P 500

Until recently, the S&P 500 was giving quite a limited reaction to the Coronavirus. In fact, the latter never stopped the index to hit another all-time high at 3400 points on 20 February. But after that, it index slumped to 3090 points, making almost a 10% drop. As such, it is still a weak indication of something unique to the Coronavirus as the index does go into a dive from time to time even below 200-MA. That’s why let’s abstain from making conclusions at this moment, but instead, take this 10% drop as a “normal” reaction of the American stock market so far – we will measure other market sectors and stocks against this figure.

S&P500Daily.png

Banking

The Bank of American dropped from the recent $35.75 per share to $30.80, while JP Morgan made a slide from $141 down to $125.50. The former made a 14% decrease in value, the latter – 11%. Both results are more than 10% with the S&P 500, however, we have to take into account the “natural” volatility of each share – none of them are particularly steady in the upward direction.

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Retail/e-commerce

Amazon’s share fell by 10% - it currently trades at $1954 against the recent $2190. EBay is now at $36.50, which is 7% lower than $39.25, where it was days before. That falls right into the 10% decrease of the S&P, making even an incline towards milder reaction than that of the banking industry. But on average, this sector presents no significant deviation from what’s happening in the market on the grand scale.

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IT

Computers and processors seem to be hit stronger than the other sectors. Intel drops by 14%, Microsoft by 23.5%, and IBM (not shown on the chart) – 12.5%. That’s a significant difference from the 10% of S&P, and there may be reasons for that.

So far we have observed banking and the e-commerce sectors. American banking will only be damaged indirectly by the Coronavirus, unless domestic chains, facilities, and personnel are hit by the Covid-19 inside of the mainland US to an extent comparable to that of China. Directly, there is little damage to American banks and their performance by the disaster in China – they are affected only on a global scale. Similar, but just slightly stronger, is the relation of the American e-commerce sector to the Chinese troubles. Only because these troubles harm global purchase orders, sales of corporations like Amazon and eBay will be somewhat reduced. But again, to a limited extent because the portion of global e-commerce purchases originating from China is relatively moderate compared to that of the domestic sales in the US. And the latter has shown good results in the Q4-2019 thanks to the holiday season. That’s why those two sectors are only receiving damage indirectly, just so much as the global landscape is affected by the virus.

On the contrary, the American IT industry is directly affected by the happenings in China. Therefore, they receive a double impact: one which comes from the global slowdown in operations, and the second one coming from disruptions inside mainland China. This is one of the factors peculiar specifically to IT: a large portion of supply chain and production facilities for those American companies is either located in China or has essential routes or parts originating from China. Hence, if the first two observed sectors of the US stock market just will have their global sales somewhat reduced, IT will not only see its sales reduced but also certain production and supply processes stalled. Thus, a stronger impact and lower dives occure in this market sector.

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Conclusion

We could be more specific with our analysis of the US stock market to find many more correlations with the Coronavirus and its effects. This short review was done merely to show that different sectors of the US economy have different nature, and although all of them get affected by the global events such as this virus in a similar way, the extent of the reaction is unique to each and is defined by its internal configuration.

That’s why it is important to do fundamental analysis specific to each stock if you want to be precise with preparing your trade positions and tactics. From our side, we will keep you supplied with enough information to run such analysis.

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