Investors have a lot to think about in the next two days, beyond enjoying the Super Bowl (and especially the chicken wings).
The S&P 500 on Friday fell 1.45%, with the Dow and Nasdaq also sharply down on the day. Not exactly an auspicious start to the weekend.
With earnings multiples at relatively high levels and an economy late in its expansion, strategists have been looking for a drawdown in stocks, even if the bull market then continues. The U.S. economy is sustaining a roughly 2% growth clip, with the Federal Reserve’s hand gently resting on the down lever for interest rates.
With stocks now falling, investors might be facing a buying opportunity.
The S&P 500 is down 3% from its recent all-time high, as the coronavirus threatens growth in the Chinese economy and therefore U.S. companies that operate in Asia.
Many strategists say that if the coronavirus turns out anything like the 2003 SARS outbreak, the market will rebound, in part because the disease would be eradicated.
UBS’s chief investment officer of Global Wealth Management, Mark Haefele, said on Monday that while the firm remains “alert for a further increase in its severity, we expect the outbreak’s impact on the region’s economy and risk assets to be short-lived, in part based on evidence from the past."
The phrase most used by several strategists in their market comments Monday was “buying opportunity.”
Starbucks SBUX closed half its stores in China, as consumers stay home. American Air, AAL Delta DAL and United Airlines UAL on Friday canceled flights to China after the World Health Organization declared the virus a global emergency. Those four stocks in the past five days have shed 4%, Add American here, 1.2% and 3.75%, respectively.
If 2020 earnings estimates come down and the virus is then wiped away within a few months, 2021 revenue and earnings estimates will likely be unchanged, creating the potential for easier earnings comparisons with 2020.
“This is going to cause a hiccup in 2020 — this is a good time for long-term investors to find opportunity,” Shawn Cruz, trading-strategy manager at TD Ameritrade, told TheStreet.
Still, patient buying is warranted. “We're going to have some chop [volatility] in the next few weeks while we find out what’s happening,” Jim Carney, founder and CEO of Purples Partners, told TheStreet.
Google GOOGL reports earnings on Feb. 3. Analysts are looking for revenue of $46.9 billion and earnings per share of $12.49.
RBC Capital Markets analyst Mark Mahaney says Google might come up a bit short on revenue but exceed estimates on earnings. “Facebook read through: incrementally negative, given potential advertising targeting headwinds created by recent regulatory changes,” he said.
But the bottom line going forward could have a savior.
“Google bought back $12.3 billion in [stock] in Q1 to Q3  and we are intrigued by the possibility that [parent] Alphabet could materially increase its share repurchase in fiscal year 2020,” Mahaney said.
Canaccord Genuity analyst Michael Graham wrote in a note, “We forecast stable advertising revenue growth at 17% in Q4 ... along with updates on new ad products.”
Here’s a fun fact: When the NFC team wins, the S&P 500 sees an average yearly gain of 10.2%. An AFC team victory usually means a 6.8% return on the index, according to research from LPL Financial.
Enjoy the game.