The markets succumbed to a bout of sickness as new coronavirus concerns pulled the Dow down over 3.5% on Monday; the S&P 500 followed suit with a 3.4% drop.
Apple, UnitedHealth Group, Carnival Group, and American Airlines were among the stocks dragging markets down, all shedding at least 4%.
News of still more confirmed COVID-19 coronavirus cases—in countries like Italy, where there are now over 200 cases compared to three on Friday, and South Korea—are only fueling investor fears as the virus shows no signs of dissipating.
Europe kicked off the selloff early, with Italy’s primary stock market, the FTSE MIB, down over 4% in the early hours, the pan-European Stoxx 600 down over 3%, Germany’s DAX down over 3%, with the U.K.’s FTSE 100 off 3%.
Meanwhile by midday in the U.S. the Dow had plunged more than 1,000 points. For Randy Frederick, the vice president of trading and derivatives at Charles Schwab, “The caution flags are waving.” As Charlie Ripley, senior investment strategist for Allianz Investment Management put it, “Overall, I think there was an understanding before that this would be a short term type of event, but with the recent updates, this could be a little bit more problematic down the road.”
The sectors that took the biggest beatings were energy, tech, consumer discretionary, and, of course, transportation. Meanwhile utilities and consumer staples became somewhat safe havens. “In general, clearly it’s a flight to safety,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
The losers
With stock market gains precariously buoyed by a few big names, it’s no surprise indexes tumbled along with some of their largest names. In fact, Schwab’s Frederick said, “Some of the reasons you see sell-offs in some of the big names is because they’ve been some of the biggest gainers.”
That includes the likes of Apple. The tech titan closed down nearly 5% on Monday, as investor fears around Apple’s huge retail and manufacturing presence in China continues to worry investors. “Apple gets hit on both sides,” said Frederick. “They’ve got the supply side and the demand side that are both being impacted.” In fact, Apple revised its quarterly revenue guidance last week, citing impacts from coronavirus, especially in China.
Another stock taking a beating in the Dow on Monday, closing down over 7.8%, was UnitedHealth Group. Analysts suspect the one-two punch of coronavirus and Bernie Sanders winning in Nevada were behind the losses (Sanders has long championed Medicare For All). For Frederick, it isn’t so clear why investors are punishing the stock today, but notes that, “healthcare has been kind of a laggard for some time … because there’s so much uncertainty,” he said.
Elsewhere in transportation, American Airlines tumbled to close down over 8.5%, as one of the poorer performers in the S&P 500 on Monday. Allianz’s Ripley cites the sector’s “exposure to people changing their plans due to increased uncertainty around this virus and whether or not this is moving toward something more pandemic,” as a big risk factor here.
Carnival Group is among the consumer discretionary stocks to feel “a decent amount of impact” from coronavirus troubles Monday, said Zaccarelli—and was the worst performing stock in the S&P on Monday, down over 9.4%. Fellow cruise stocks Norwegian Cruise Line Holdings and Royal Caribbean Cruises also made investors ill on Monday, closing down 9.4% and 9% respectively.
Other stocks having a poor showing include American Express, which closed down roughly 5%, Cisco, down 4.9%, and Visa, down a similar 4.8%.
The winners
On the bright side?
Verizon closed top of the pack in the Dow on Monday, still down less than 0.4% to close. For one, Schwab’s Frederick thinks investors are flocking to more defensive and dividend-paying stocks amid the market turmoil. As a company that pays a 4% dividend yield, Frederick thinks Verizon is among “those types of names [that] tend to find interest when you have people looking for places to hide and people looking for dividend yield, and the prospect for lower rates which now seems almost inevitable is going to make those more attractive.”
While the Fed has largely communicated an on-hold stance for the year in regard to rate cuts, changing financial conditions might be putting pressure for the Fed to reconsider, according to Ripley—another plus for dividend-paying stocks like Verizon.
And as investors seem to be shying away from consumer discretionary stocks, consumer staple Clorox had a strong day in the markets on Monday, closing up over 1.5%. For Schwab’s Frederick, that’s no surprise. Utilities and staples are “places where people go to either get safety and stability” at volatile times like these in the markets.
Other names in the green on Monday were Regeneron Pharmaceuticals and Gilead Sciences—both up around 5% at the close.
“The best trade to make may be no trade at all”
In the short term, Zaccarelli said investors can expect to see utilities outperforming energy or consumer discretionary, and consumer staples outperforming industrials. And as Europe continues to weaken, he said events like the spread could provide “attractive entry points,” for patient investors, but that now isn’t the time to rush in right away to snap up a discount.
“There are times like now that … the best trade to make may be no trade at all” Frederick said. “Today, at this moment, that’s probably what I would recommend.”
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