So it rained yesterday

Things you need to know:

• Asian markets remain closed – but efforts to fight the virus heat up
• European markets put it on the back burner and focus on the data, on BREXIT and on the BoE.
• US futures are “bouncing” as our focus turns to a slew of big earnings reports – think Apple
• Try some comfy food – Shepherd’s Pie

“Someone told me long ago, there’s a calm before the storm, I know it's been comin' for some time, When it's over so they say, It'll rain a sunny day, I know shinin' down like water, I want to know, Have you ever seen the rain?  I want to know, Have you ever seen the rain Comin' down on a sunny day?” - Credence Clearwater Revival, 1970.

So it rained yesterday. And it rained all around the globe as stocks took a beating on the back of increased concerns over the impact of the coronavirus. While most of Asia is closed for the Lunar New Year, they are not closed to the infection. European stocks took it on the chin as news suggested the virus was spreading “out of control,” all falling better than 2%, setting the tone for the US. In fact, Sunday evening as the sun rose in Asia, US futures were deep into negative territory, only to get worse after the European markets opened. The story about another BA (-2%) airliner crash in Afghanistan sent the markets off the edge, plummeting another 150 pts directly ahead of the opening. (That story has since been corrected. It was not a BA aircraft; it was a US military plane. But when it was first announced, it did cause new angst for BA and the broader market.) And so it goes, the tone was set and that has allowed some of the nervousness in the market to come to a head. By the end of the day, the Dow gave up 453 pts or 1.57%, the S&P choked, falling 52 pts or 1.57%, Nasdaq lost 175 pts or 1.9%, and the Russell gave up 18 pts or 1.09%.

As you might imagine, TECH (XLK) and Energy (XLE) suffered the most, falling $2.30 or 2.36%, and $1.57 or 2.77% respectively. Leisure and Travel stocks like RCL, CCL, and NCLH fell by 7.59%, 4.7%, and 3% respectively. Industrial names (XLI) lost $1.58 or 1.9%, all the other groups followed suit, ending the day in the RED. Even Utilities (XLU) lost out, falling 0.25%, which is really a win considering. Gold (another safety trade) rose $10 or 0.66% as money moved out of equities for the time being. Treasuries moved higher sending yields down to 1.6%, as the “flight to safety” continued.

Look, as I said yesterday in my Squawk Alley appearance.

Markets were ripe for a pullback. While the selloff feels ugly, the virus has given traders and some investors a reason to hit the SELL button. But remember, for every seller there is a buyer. Yesterday the buyers just chose to move lower, leaving a void in prices causing the rout that we saw. But it isn’t a reason to panic or jump out the window. Remember, events like this do NOT price stocks in the long run. Most of the time, they prove to be a buying opportunity. But take your time, this needs to shake out a bit. We are only off 2.8% so far. We could easily see the market back off another 3 or 4% in the days ahead especially if the headlines remain “HOT.” Remember, SARS caused a 12% pullback in 2003. The Ebola virus in February 2014 saw the market pullback by 6% and Legionnaires disease in the summer of 1976 saw the market lose 10%. Just sayin’…

While there were only a handful of earnings data, five out of six “beat the estimates.” But that did little to help them rally yesterday. And today brings a whole other set of reports: FEYE, LMT. ALK, PHM, MKC, HCA, MMM, AOS, HOG, PII. UTX PFE, NUE, CIT, XRX - all before the bell. After the bell, we will hear from AAPL, SBUX, AMD, EBAY, SYK. Trust me, all eyes are keenly focused on what Timmy Cook (Apple CEO) has to say. Now yesterday, AAPL lost $9 or 3% as the markets tumbled. The high flyers are always the first to go (GOOG -2.24%, FB - 1.8%, AMZN -1.8%, NFLX - 3%). You can’t be surprised after what we discussed. Remember AAPL was priced for perfection. And with the tone yesterday, some trader types decided to take some risk off the table and any sense that they might miss on “anything” that will cause another round of selling. But if overnight, the virus conversation suddenly moves to the back burner, we could see a “dead cat bounce” for the market, which will see AAPL shares surge ahead of tonight’s announcement. In fact, with the market looking up this morning, Apple is quoted UP $3 in pre-market trading.

Economic data today includes: Durable Goods - exp of +0.4%, Cap Goods orders Non-Defense of +0.2%, Richmond Fed Survey of -3.

 

VIRUS MOVES TO THE BACK BURNER!

This morning we find out that the virus has now killed 106 people with 4515 people around the world now infected. BUT, European stocks are “bouncing” after the thrashing they took yesterday. Because as I said above, it looks like investors/traders and algos have “moved the conversation to the back burner” as international efforts to slow or curb the spread of this virus continues and that is setting us up for a dead cat bounce*. This morning China announces that it will stop individual travel to Hong Kong while slashing the number of flights to that city as they try to “stop the bleed.”

[*A dead cat bounce is a temporary recovery from an exaggerated sell off, that is followed by the continuation of the move lower. It gives everyone a false sense of “it’s all good.”]

Now in addition, there were plenty of people (myself included) that tried to put this in perspective. Remember, the market just needed a reason to shake the bushes a bit and to see who was in and who was out. In the end, all of us really said the same thing. This outbreak, as long as it doesn’t turn into the bubonic plague, will run its course while in the interim creating a buying opportunity for the long term investor, just as the ones I noted above did as well. 

[Point of reference: The Bubonic plague struck Europe and Asia after 12 ships from the Black Sea docked on the shores of Sicily in 1347, killing a third of the European population.] To be clear, the Coronavirus is NOT the Bubonic plague.

Overnight, most of Asia remains closed for the lunar new year holiday. But the markets that were open did decline following in the US footsteps: Japan -0.55% and the South Korea Kospi lost 3%.

In Europe, the tone is different as investors there try to put it in perspective and move it to the back burner as the focus remains on BREXIT (Friday), The BoE (bank of England) rate decision Thursday, and earnings. Remember, as of Saturday morning, the UK is once again a stand-alone country and no longer part of the broader European Union. This will launch that transitional period in which both sides work towards a new “free trade agreement.” In early trading the continent is seeing gains across the market centers.

FTSE +0.17%, CAC 40 +0.24%, DAX +0.23%, EUROSTOXX +0.10%, SPAIN +0.09%, and ITALY +0.29%.

US Futures are up as well, but only taking back a small piece of what they gave up yesterday as cooler heads are trying to prevail. Dow futures are 111 pts, S&P’s are +15 pts, the Nasdaq is +58, and the Russell is +11 pts. The market and the players are all trying to focus on the data, not on the virus. With today being a big earnings day with big company releases, expect the focus to shift. Now if we suddenly get a new outbreak of cases or suddenly see the death rate surge, then the bounce we are seeing now will quickly turn to losses, as they raise the temperature again. I fully expect the earnings today to NOT disappoint. Consensus estimates have been slashed so the bar is LOW… Capisce?

The S&P and the other indexes all closed lower yesterday but off the lows of the early morning. We tested S&P 3234 before closing at 3245, as it struggled to find support at the 3250 level we discussed yesterday. With this morning’s action, we should trade to that level. We will see if we can hold that level. 

Oil has now broken all three trend line supports and is down a bit more this morning as it tries to find some stability. Expect the algos to push it lower in an attempt to “shake those bushes” as well to find out where the bodies lie.” The chart is ugly yet we are holding yesterday’s low of $52.13 and that is a positive. So sit tight.   

Gold is UP $2 at $1,585/oz. And if the tone calms down today, then look for gold to back off just a bit as the trader types take some money off the table from the recent 3% surge. Any retreat should see gold find support at $1,550, at least until this virus gets under control.

 

Shepherd's Pie

This is a great, easy “comfort food” dish. One that is good on a cold night as it contains everything you need in one dish: meat, veggies and mashed potatoes. So light the fire and curl up on the couch.

For this you need: carrots, onions, olive oil, ground beef (chuck), butter, frozen peas, canned corn, tomato paste and a shot of red wine (optional).

Sauté chopped carrots and onions in some olive oil until soft - 8-10 mins... add ground beef - but use ground chuck - as it has a higher fat content and gives the pie a robust juicy flavor. Season with S&P. Once all browned and cooked nicely - drain any of the fat that has accumulated. Add about 2 tablespoons of butter, frozen peas and the canned corn. Mix well. Next add tomato paste (Contadina always works nicely) and a shot of red wine - let simmer for a bit. (maybe 12-15 mins). Turn off the burner and get a baking dish. Grease with butter and add the mixture. Top this off with homemade mashed potatoes and sprinkle some grated parmigiana cheese on top. Put in the oven and bake for about 20 mins or until the mashed have a golden brown tint.

When done - remove from oven - and let stand for 5 mins. Serve on warmed plates. Gather the family - put on a nice family movie and enjoy your time together.