Fears of a Super Bug

Global markets decline as fears rise about the potential spread of a new Chinese coronavirus.

The Market Sum | Insight after the bell By Caleb Silver, Editor in Chief Tuesday's Headlines 1. U.S. markets sell off as coronavirus fears spread 2. Boeing says the 737 Max may not return until mid 2020 3. The IMF lowers global growth forecasts, again 4. Is Europe waking up? 5. Silly stock moves in 2020 Markets Closed Dow 29,196.04 -0.52% S&P 3,320.79 -0.27% Nasdaq 9,370.81 -0.19% VIX 12.82 +5.95% Bitcoin $8,734.15 +0.56% US 10-Yr Yield 1.769 -3.65%     Markets Today Global markets were in sell mode today as U.S. investors returned from the long weekend and met a host of concerns. The potential spread of a new Chinese coronavirus, which causes a type of pneumonia, has killed six people with confirmed cases exceeding 200 on the mainland. The Centers for Disease Control (CDC) confirmed the first case of the virus in the U.S. in Washington State this afternoon. That put shares of airlines, hotels, and other hospitality related companies under pressure as investors worried about a potential widespread epidemic.    This is far from becoming a global pandemic, or even a global health emergency. For that to happen, the World Health Organization (WHO) would have to give it that classification, also known as a Public Health Emergency of International Concern. For now, the CDC has deemed the immediate health risk to the American population to be "low". That said, the threat of a new super bug has a psychological impact on investors. The last such incident was in 2002-03 with the SARS outbreak. The S&P 500 and the DJIA fell 17% and 16% respectively between November of 2002 and March of 2003. There were other factors that put markets into a correction, but SARS concerns wiped out as much as $40 billion of GDP from the global economy and put global equity markets into a tailspin.   Headlines Boeing (BA) is reportedly telling airlines and suppliers that it doesn't expect regulators to sign off on the 737 Max until the middle of 2020, months later than the manufacturer previously expected. The Federal Aviation Administration said in a statement that it hasn't said when it will clear the plane for flight. Shares of Boeing fell as much as 5% today before closing down 3.4%. France has agreed to suspend its 3% digital services tax until the end of 2020 after the U.S. threatened additional tariffs up to 100% on French goods worth $2.4 billion. In return, the U.S. will postpone retaliatory tariffs this year, according to an official speaking with The Wall Street Journal. The U.S. Trade Representative said in December that the tax is unfairly burdensome to U.S. tech giants. Uber (UBER) has sold its Uber Eats India business to local market leader, Zomato. The all-stock transaction gives Uber 9.99% ownership in Zomato. Founded in Delhi 11 years ago, Zomato is present in 24 countries and its backers include China's Ant Financial.  Moody's has downgraded Hong Kong's debt rating to "Aa3" from "Aa2" and changed the outlook to stable from negative. The agency said the absence of an effective government response to the protests reveal Hong Kong's institutions are weaker and under more constraints than previously estimated. The stable outlook reflects superior fiscal strength and consistent macroeconomic stability, it said. The IMF cut its forecast for global economic growth in 2020 by 0.1% to 3.3% after unexpectedly low economic activity numbers in a few emerging market economies, notably India, led to a reassessment of growth prospects over the next two years. The biggest risks to growth, according to the IMF: New trade tensions could emerge between the United States and the European Union, and US-China trade tensions could return. Here are the IMF's latest growth projections by country for 2020 and 2021:     Is Europe Finally Waking Up? Growth in the Eurozone is pretty anemic, as you can see. Germany, its biggest economy, has been mired in a downtrend for the past two years, and Italy is no better. New tariffs courtesy of the Trump Administration could make things even worse, as the IMF notes in its report.    On the other hand, there is a chance that 2020 could be the year that Europe finally breaks out and leads the global economy in growth. Jeff Kleintop, the Chief Global Investment Strategist at Schwab, sees this as a real possibility for these three reasons: The U.K. is a big customer of European companies, and a Brexit resolution at the end of January could reignite the U.K.'s buying appetite. European nations are among the most dependent on trade, and the trade winds may just blow in the right direction if the global economy improves. Europe may gain the most from the resulting manufacturing rebound - especially if Germany can kickstart its own growth. More than half of the revenue of companies in the MSCI Europe Index comes from international trade (outside of Europe). Specifically, German companies get 79% of revenue from international trade compared with 44% for Japan, 38% for the United States, and just 7% for China, as you can see in the chart below. As a result, a rebound in global trade may disproportionately benefit European companies, according to Kleintop. Those are a lot of "ifs", but given how sluggish the European economy has been in the past two years and the changing dynamics brought on by Brexit, a European recovery is not that farfetched.   chart courtesy Schwab Research     Silly Stock Moves of 2020  Investors are peculiar.   That statement would be true at almost anytime in history, but the first few weeks of January have made it abundantly clear. Some of the biggest gainers this year are part of the unicorn class of 2019, and not much has changed in their balance sheets. They are not any closer to profitability than they were in 2019, but investors have decided they need to own them now for some reason.    In the case of Beyond Meat (BYND), the wonder stock of 2019, the company has benefited from some good press around partnerships with Starbucks and McDonalds, but its path to profitability is unchanged. Still, shares of BYND are up 67% in 2020. Tilray, the cannabis research and health care company, is up 24% so far this year. Nothing's changed, although there is a proposed bill in the U.S. Senate to change the rules around medical marijuana use.  It's just a bill, at this point.   Uber and Lyft, the two popular ride sharing app companies, are also sharply higher this year. If anything, the news for their business models is even worse as California has passed Assembly Bill 5, which may force them to pay their drivers better wages and provide benefits.    Still - investors are making bets on these risky early-stage public companies giving them eye-popping valuations and stock prices well beyond their future earning capabilities.    Tulips anyone?   chart courtesy YCharts     More News: Cybersecurity Stocks Like CyberArk See Big Demand Texas Instruments Stock Nears Historic Breakout 3 Charts That Suggest European Markets Are Headed Higher SPONSORED BY INVESCO The Complete Guide to ETFs ETFs are becoming increasingly popular and soaring to new heights among investors. Invesco's insights can help you determine if these investment vehicles are right for you. Learn More » (chart courtesy YCHARTS)     Plant-based meat substitute maker Beyond Meat continued to soar after Starbucks announced it would add more plant-based products to its menu, and McDonald's announced it will test plant-based burgers in Canada. The year-to-date number in the above table is incorrect, for the correct number, see the graph in the section above. Tesla rose after New Street Research raised its target price for the stock to $800. Uber rose today after it said it sold its food-delivery business in India to a competitor, Zomato, for a 10% stake in the company.     Despite a disruption of Libyan oil production due to that country's civil war, oil prices fell today. In addition, natural gas prices have continued to drop due to a mild winter and ample supply. Because of this, 4 of the 5 worst performing stocks today were oil and gas companies. The odd company out was restaurant operator Yum China Holdings, which suffered, along with other China-based companies, due to the outbreak of a new coronavirus there. Word of the Day Tulipmania Tulipmania is the story of the first major financial bubble, which took place in the 17th century. Investors began to madly purchase tulips, pushing their prices to unprecedented highs. The average price of a single flower exceeded the annual income of a skilled worker and cost more than some houses at the time. Tulips sold for over 4000 florins, the currency of the Netherlands at the time. As prices drastically collapsed over the course of a week, many tulip holders instantly went bankrupt.     TIMOTHY A. CLARY / GETTY IMAGES   Today in History January 21, 1976 Today in 1976, two Concorde supersonic jets took off from London and Paris marking the beginning of faster-than-sound commercial flight. The Concorde was developed by the British and French precursors to BAE Systems and Airbus, and first test-flown in 1969. It had a maximum cruising speed of 1,354 miles per hour, just over twice the speed of sound. The jet could make the trip between London and New York City in roughly three hours, down from the eight it takes in a conventional aircraft. Despite the technological achievement of the Concorde's creation, only 14 of the aircraft ever went into service, and due to the enormous development cost, it was never able to turn a profit. After reducing the number of routes to cut costs, all Concorde jets were retired in 2003.   Source: https://www.britannica.com/technology/STOL-airplane How can we improve the Market Sum? Tell us at marketsum@investopedia.com Enjoy the Market Sum? 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