Coronavirus-Led Pullback Provides Good Entry Point to Market

Wall Street plummeted on Jan 21 after the Centers for Disease Control and Prevention confirmed that one person in the United States was diagnosed with coronavirus after returning from the Wuhan province of China, where the virus originated. The Chinese government has confirmed that nine people have already died and 400 other are infected with the virus.

Following these developments, all three major stock indexes —  the Dow, the S&P 500 and the Nasdaq Composite — have lost 0.5%, 0.3% and 0.2%, respectively. The Dow ended its five-day winning streak while both the S&P 500 and the Nasdaq Composite finished a three-day winning run.

Sectors Affected by the News

The coronavirus disease broke in a crucial time as the Chinese Lunar New Year holiday will start from Jan 24 with hundreds of millions of people expected to travel to and from China. U.S. stocks from several sectors, closely linked to the holiday event plunged yesterday.

Travel and booking stocks such as Booking Holdings Inc., Expedia Group Inc. and TripAdvisor Inc. TRIP declined 3.1%, 1.5% and 1.4%, respectively. Airlines stocks, such as United Airlines Holdings Inc., Delta Air Lines Inc. DAL and American Airlines Group Inc. tumbled 4.4%, 2.7% and 4.2%, respectively.

Moreover, shares of cruise operators like Royal Caribbean Cruises Ltd., Carnival Corp. CCL and Norwegian Cruise Line Holdings Ltd. shed 4%, 2.3% and 2.9%, respectively.

Chinese tourists used to spend hefty money on U.S. luxury products as holiday-session purchase, which they carry to their native land. Consequently, the stock price of Estee Lauder Companies Inc. EL, Coty Inc. and LVMH Moet Hennessy Louis Vuitton S.E. tanked 1%, 1.5% and 2.7%, respectively.

Technology stocks like Apple Inc. AAPL, Qualcomm Inc. and Xilinx Inc. decreased 0.7%, 1.4% and 1.2%, respectively. All three companies have strong business exposure on China. Additionally, hotel stocks like Marriott International Inc. and Hilton Worldwide Holdings Inc. fell 3.9% and 2.9%, respectively.

Another space hit by coronavirus is casino operators. Shares of Wynn Resorts Ltd, Las Vegas Sands Corp. and MGM Resorts International lost 6.1%, 5.4% and 6.2%, respectively. These companies generate above 20% revenues from China.

Good Opportunity to Enter the Market

Investors are concerned that if this virus spreads like the SARS pandemic that cost more than 800 lives worldwide, global economic growth will be affected. Notably, SARS had also originated in China. Lately, China confirmed that coronavirus can be spread by humans. Despite this, some analysts expressed that the virus does not seem to be as lethal as SARS.

Wall Street tumbled on Jan 21 and it may remain volatile in next one or two weeks while investors closely watch the spread of this virus. Meanwhile, every downturn in the market will be a good entry point for investors.

A series of recently released economic data for December like retail sales, housing and manufacturing output confirms U.S. economic stability and clearly indicates that the historically longest expansionary phase is here to stay.

The recently signed phase-one trade deal between the United States and China has significantly cooled down the nearly two year old tariff war. The interim deal will at least help in restoring U.S. business confidence and global economic growth.

The Fed chair has reiterated his commitment to do whatever needed to support economic expansion and not raise interest rate until the inflation, which is currently at just 1.6%, crosses the Fed’s target level of 2%. Unemployment rate is currently at the lowest-level in 50 years.

We believe, Wall Street volatility will be short-lived and the impressive bull-run will continue in 2020. At this stage, investors will gain by betting on stocks that plummeted on Jan 21 but carry a top Zacks Rank. Notably, Apple, TripAdvisor, Delta Air Lines, Estee Lauder and Carnival carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows the price performance of the above-mentioned stocks in the past three months.

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
TripAdvisor, Inc. (TRIP) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report
 
Carnival Corporation (CCL) : Free Stock Analysis Report
 
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