The market is incredibly fearful.
The S&P 500 — down 10% from its all-tme high and in a correction — fell as much as 3.5% Thursday. The Dow Jones Industrial Average fell as much as 2.45% with the tech-heavy Nasdaq down as much as 3.9%. The World Health Organization said Wednesday night the coronavirus, which is causing companies to shut down manufacturing operations and consumers to stay home, could spread to the U.S.
When the virus first broke out, the market dipped and came back. Investors thought the U.S. wouldn’t get hit and that the virus would be easily contained, allowing companies and consumers to resume activity. They were wrong on both assumptions.
Now, analysts and strategists are all saying companies that manufacture goods in China and Europe may have to continue to halt production with people continue to stay home.
Semiconductor companies, specifically, could post lower sales and earnings expectations for 2020.
Needham and Co. on Wednesday reduced 2020 estimates for several companies, including Qorvo (QRVO) - Get Report, Skyworks Solutions (SWKS) - Get Report, NXP (NXPI) - Get Report and Microchip Technologies (MCHP) - Get Report. Alliance Bernstein analyst Stacy Rasgon wrote in a Thursday note, “as of now, most semi companies have not baked in much, if any, virus downside. Investors should likely be girding for semiconductor revisions in the near future.”
Here are the biggest losers on the Dow Thursday:
Also, U.S. GDP came in at 2.1% for the fourth quarter of 2019, a solid rate. But the investors know that companies have much bigger fish to fry when it comes to economic growth for the near future and the virus.
While some investors are looking to buy the dip, as the virus could be eradicated in the first half of 2020 and economic activity may soon resume, some are now looking to avoid stocks exposed to the impact. Here’s a word of advice from Jim Carney Founder of Parplus Partners, a hedge fund trading volatility contacts:
“Be defensive. Avoid companies with high beta [volatility] that are closely correlated with the S&P 500. Don’t bet against volatility. Avoid airlines with leverage and exposure to Europe. Beware if oil falls below $50 a barrel, which will endanger indebted oil companies.”
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