Equities started the week in upbeat fashion as each of the three major domestic benchmarks traded higher despite a gloomy forecast regarding first-quarter GDP.
- The S&P 500 gained 0.73%.
- The Dow Jones Industrial Average rose 0.60% today.
- The Nasdaq Composite added 1.13%.
- Boeing (NYSE:BA) continues cobbling together some momentum, ranking as the best-performing Dow stock on Monday.
On a noted related to Boeing, CNBC published a survey of economic forecasters early today, noting that they expect U.S. first-quarter GDP to show modest growth of 1.2%. Deutsche Bank pared its estimate, taking 0.4% off due to Boeing’s lost production of the 737 Max jet and 0.3% due to the impact of the new coronavirus from China.
Assuming that projection proves accurate, it would represent a big drop from the growth of 2.1% reported in the fourth quarter, but economists do see output rebounding back to 2% by the second quarter.
Sure, it can be argued that investors didn’t react today the way one expect to that GDP forecast. However, the issue of Boeing being a drag on U.S. economic output has been mentioned for several months, meaning it’s priced into the stock and the same should be true of GDP estimates.
Although the Dow was trading higher, just 18 of its 30 members were higher in late trading.
Last week, David Kostin, head of U.S. equity strategy at Goldman Sachs, sent a note to clients, highlighting a basket of China-sensitive stocks that would likely rally if fears regarding the coronavirus from China prove overblown. His advice is to buy cyclical and value names if virus fears ebb over the near-term.
Caterpillar (NYSE:CAT) is one of the names in the Goldman basket and while I could not ascertain whether McDonald’s (NYSE:MCD) is as well, the fast-food chain has significant China exposure, has had to close stores there due to the coronavirus and fits the bill as a cyclical stock.
Both Caterpillar and McDonald’s were modest Dow winners on Monday.
More Virus Concerns
Apple (NASDAQ:AAPL) was also among the smaller Dow winners today despite some challenging news flow. It was originally reported that Foxconn, Apple’s major parts supplier, was expected to get back to work Monday, but Reuters later reported that Beijing denied that request.
Even when Foxconn comes back online, it could take the company up to two weeks to get back to original output levels and that could weigh on Apple’s ability to meet iPhone demands for the current quarter.
“Let’s not sugarcoat it: if true, this production news out of China over the weekend will be a shock to the system and disrupt the supply chain further for Apple on both its core iPhone franchise and AirPods unit production, which is already facing a short supply heading into this week,” said Wedbush analyst Danile Ives in a note out Monday.
The coronavirus is a legitimate cause for concern for Apple, but that doesn’t mean the bull case for the stock is over. Actually, the opposite is probably true.
And the Award Goes To…
The Academy Awards took place last night and it was a good night for Disney (NYSE:DIS), meaning today was a good day for Disney investors. The mouse took home four Oscars and that prompted a gain of about 1% for the stock on Monday.
Bottom Line on the Dow Jones Today
There’s no denying that the coronavirus is hindering emerging markets benchmarks, putting U.S. equities in a familiar place: a leadership role. However, some market observers are sounding cautious tones on domestic stocks.
“The coronavirus outbreak in late January swiftly shifted the direction in global markets – from an ebullient risk assets rally to an anxious selloff. U.S. stocks had performed in line with global peers, before switching gear to outperform them,” said BlackRock in a note out Monday. “We see their performance pattern before late January to reassert itself over the next six to 12 months as growth recovers — and retain our neutral call on U.S. equities.”
“Neutral” is fine, but it doesn’t doom stocks, either.
As of this writing, Todd Shriber did not own any of the aforementioned securities.