Week-In-Review: Markets Pullback As Coronavirus Spreads
The major indices opened the week higher, helping the S&P 500 and the Nasdaq Composite hit fresh record highs. Sellers showed up on Thursday and sent stocks lower after new cases were reported that the coronavirus continued to spread (in and outside of China). In the short-term, the market is pulling back from very extended, and, in some cases, frothy conditions. For now, this is “normal” but if the selling intensifies and the major indices all break (and stay) below their respective 50 DMA lines, then odds favor a deeper pullback, and possibly a correction, will unfold. For now, a slightly defensive posture is warranted in the short-term until we see how the market reacts near support. Meanwhile, the intermediate and longer-term outlook remains very healthy.
Monday-Wednesday’s Action:
Stocks were closed on Monday in observance of Presidents’ Day. After Monday’s close, Apple said it will miss guidance due to the coronavirus. Before Tuesday is open, Walmart reported it allows a quarter which had nothing to do with the virus and that set the tone for negative day on Tuesday. However, the bulls showed up shortly after the open and bid stocks higher, helping erase most of the losses by the close. Stocks raced higher on Wednesday as the S&P 500 and the Nasdaq both hit fresh record highs.
Thursday & Friday Action:
On Thursday, stocks fell hard after news broke that the coronavirus continued to spread. Around 11am EST, the market fell hard, and the media called it an “air pocket” before the market stabilized in the afternoon. Overnight, more cases were reported in the region and more companies are warning that the first quarter earnings will be impacted due to the coronavirus. Stocks fell again on Friday as the market erased its gains for the week and closed lower.
Market Outlook: Easy Money Is Back
Once again, global central banks are back on the easy money bandwagon after the Fed and the ECB both announced more easy money measures directly aimed at stimulating global markets. The market has soared all year based on two key points: optimism that a trade deal will be reached between the U.S. and China and more easy money from global central banks. In 2019, the Federal Reserve reversed its stance and moved back into the easy money camp. Then, other central banks followed suit and that means easy money is back to being front and center for the market. Phase 1 of the trade deal was signed, now let’s see what happens with Phase 2. As always, keep your losses small and never argue with the tape.
