Equities continued to swoon during February, as investors came to grips with the expanding impact of the coronavirus. Amid a growing sea of corporate warnings that led investors to question earnings forecasts for the current quarter, as well as all of 2020, all the major stock market indexes finished last month down 6.4% to 10.1%. The hardest hit was the Dow Jones industrial average, and the U.S. stock market barometer that is the S&P 500 fell 8.4% in February, which added meaningfully to its decline year-to-date. By comparison, the Real Money Post Industrial Average (RMPIA) declined a mere 6.3%, leading it to finish the first two months of 2020 down 5.6% vs. 8.6% for the S&P 500. RMPIA is a modified market-cap weighted portfolio consisting of 30 of the most important stocks in the market today.
The relative outperformance registered by RMPIA reflected moves higher by Regeneron Pharmaceuticals (REGN) , Biogen (BIIB) , Allergan (AGN) and Netflix (NFLX) , as well as the flat performance delivered by Celgene (CELG) shares during February. Offsetting those positive forces were meaningful declines in shares of Adobe Systems (ADBE) , BlackRock (BLK) , Kraft Heinz (KHC) , Apple (AAPL) and Medtronic (MDT) shares.
As we put February in the rear view, and entered March we received a growing list of company updates that included revised guidance to the downside, curbed travel or changes to upcoming conferences:
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NXP Semiconductor (NXPI) updated its guidance for the current quarter and sees the impact of the coronavirus hitting its top line by $50 million to $150 million vs. its Feb. 3 revenue guidance of $2.195 billion to $2.255 billion. In revising its outlook, the company shared, "What we have seen is lower than expected sell-through and order push outs in both our distribution channel and with direct customers." We suspect this announcement made by NXP will hardly be the lone one to be had this week.
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One of Apple's (AAPL) key manufacturing partners, Hon Hai Precision Industry (HNHPF) , shared its expects its plants in China to begin operating normally by the end of March, however, Hon Hai warned it remains difficult to quantify the impact of the coronavirus related disruption.
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After a worker tested positive for the coronavirus, Samsung Electronics and LG Innotek have shut their respective factories in South Korea.
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On the back of that comment, semiconductor company Qorvo (QRVO) trimmed its March quarter revenue forecast to $770 million, down from its prior guidance of $800 million to $840 million, and issued comments that suggest there could be more downside with its forecast -- "the full impact of Covid-19 remains difficult to forecast given the uncertainty of the magnitude, duration and geographic reach of the outbreak." We suspect we will be hearing similar comments from others in smartphone and consumer electronics food chain.
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United Airlines (UAL) Chief Executive Oscar Munoz shared the company will likely need to cut additional flights given sagging demand related to the coronavirus outbreak. Delta Air Lines (DAL) on Sunday announced it is suspect flights to Milan until early May. American Airlines (AAL) said it is suspending Milan flights through April 24.
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The Macau Gaming Inspection and Coordination Bureau reported February gross revenue fell 87% year-over-year to about $399 million. Companies to feel the bite of this data include Wynn Resorts (WYNN) , Las Vegas Sands (LVS) , and MGM Resorts (MGM) .
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Citing the decline in air travel and consumer traffic in key shopping and tourist areas, Inter Parfums (IPAR) delayed new product launches and has revised its 2020 revenue guidance to around $713.4 million vs. the $744 million consensus and its prior guidance of $742 million.
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Hyatt Hotels (H) withdrew its previously announced 2020 outlook due to the impact travel demand associated with the coronavirus, as a growing number of companies are curbing corporate travel and event and conference cancellations. For example, late last night Facebook (FB) joined Twitter (TWTR) in pulling out of the 2020 South by Southwest festival held each year in Austin. In addition to suspending all "non-critical" travel, Twitter is now asking all of its employees to work from home to slow the spread of the coronavirus.
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February sales fell 13% across the globe for Hyundai Motor (HYMLF) to 275,044 vehicles as the coronavirus sapped demand and hit the company's China supply chain. Hyundai also shared it closed a factory in South Korea last Friday after a worker tested positive for the virus.
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Visa (V) joined the ranks of companies that cut their outlook for the current quarter due to the coronavirus. In an 8-K filing with the Securities and Exchange Commission, it shared the most significant impact has been on travel to and from Asia, which has led to a sharp slowdown of its cross-border business. Based on trends through the end of February, and assuming some further deterioration in March, Visa expects its March quarter revenue growth to be 2.5 to 3.5 percentage points lower than the outlook shared on Jan. 30.
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Moderna (MRNA) cancelled in-person plans for its Manufacturing & Digital Day event but will continue with the planned webcast of the program. Alphabet (GOOGL) and Microsoft (MSFT) are opting to make their Cloud Next and Microsoft MVP Summit conferences "digital-first" events.
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IHS Markit (INFO) announced the cancellation of several large customer events in the current quarter, which will impact its quarterly revenue by $50 million and its earnings per share for the quarter by 9 cents.
If those weren't enough, Uber (UBER) added several references to the coronavirus and public health risks to the company's Risk Factors section its 2019 10-K filed with the SEC earlier this week. Interested readers can find that filing here, and the Risk Factors section begins on page 9. Odds are Uber's 10-K won't be the only filing to add such language to its Risk Factors section.
And then Tuesday the Fed stunned the market by announcing an emergency rate cut of half a percentage point in response to the growing economic threat from the coronavirus. And with that, stocks are bouncing around Wednesday, as the market digests the Fed's expected-unexpected move and what it means. Simply put, the Fed is aiming to manage the mindset of the market.
The fact the Fed made an emergency cut is bound to give rise to the view to at least some investors the impact of the virus could be worse than expected, and yes it is being reported it will likely deemed that Covid-19 is a global pandemic "once sustained person-to-person spread takes hold outside China."
At the same time, the question is what can a Fed rate cut do about global supply chain disruption related to the virus? The short answer is not much, and as we saw with Tuesday's post rate-cut selloff, and the volatility is yet to end. While this could give rise to "fear of missing out" on up market days to come, the reality is there will be another shoe to drop, especially if the coronavirus is labeled a pandemic in the coming days. Readers should remember RMPIA was constructed for the long-term, and while few enjoy periods in the market such as the one we are in the midst of, RMPIA remains well situated for the coming quarters.
