For the last several weeks, the market has been dealing with one question: Will the economic impact of the coronavirus matter? So far, the answer has been a very resounding no. Market players have chalked up the lack of a negative response to stimulus efforts by the central banks. In the U.S., the "Not QE" of the Federal Reserve was not intended to battle the fallout of the coronavirus, but it has had that impact and kept a very strong bid under the market.
This morning, Apple (AAPL) lowered its first-quarter revenue outlook due to slower sales in China and because its iPhone suppliers are impacted. The company says it expects the impact of the coronavirus to be transitory, but it has not issued any specific numbers.
The indices are set to open lower on the news, but these weak opens have been consistently bought very aggressively. Market players simply refuse to embrace the argument that the coronavirus is going to have a major economic impact. There are some market participants that argue that the media have exaggerated the impact, but most market players point at the central banks as being the main reason this issue is not taking hold.
One of the ironies of the recent market action is that the very strong price action feeds the narrative that the coronavirus is not going to have much of an impact. With the market acting so well, it is hard to believe that it is simply ignoring very obvious news.
The market is typically a discounting mechanism. It looks ahead and tries to price in what may happen. This mechanism seems to be broken right now with neither fundamentals or technicals mattering. All the arguments about how the charts are extended and in need of rest and how there are going to be economic consequences are being ignored. Everyone is focused on price action instead and that is what is holding the market up.
The trillion-dollar question now is whether this news from Apple is going to change the dynamic at work. If the recent action is primarily driven by central banker created liquidity, then it shouldn't. There may be some short-lived downside, but that liquidity will go to work again quickly and provide a strong underlying bid.
My game plan is to monitor the action closely this morning and to see if the sellers can gain some momentum. I'm not expecting to see a major change in character but will be on guard and watching for lower lows and failed bounces.
In addition to the poor news from Apple, Walmart (WMT) is also seeing a weak response to its earnings this morning. It missed revenue estimates and has cut guidance slightly.
The main theme being reported by bulls right now is that the impact of the coronavirus is temporary. That might be the case but the market hasn't seemed to discount for even a minor disruption.