The question of whether the stock market’s bullish run is going to be cut short by the coronavirus from China — now officially designated Covid-19 — has been answered with a resounding “no” this week.
Tuesday was the litmus test, the day we would see once and for all what the Covid-19 outbreak could do to the U.S. stock market.
Tuesday was the day Apple (NASDAQ:AAPL) warned investors that it would not be meeting revenue guidance for the current quarter because the virus outbreak was adversely affecting both demand for Apple products within China and the company’s ability to get product supply out of China.
The negative news hit like a bolt of lightning before the opening bell Tuesday. Shares of Apple dropped more than 3% in pre-market trading.
However, pre-market trading doesn’t always tell the whole story. In fact, whatever happens in pre-market trading often gets reversed after the opening bell.
Tuesday was no exception. It appears Wall Street looked past the headlines and focused on a statement that appeared later in Apple’s press release. The statement read:
“Outside of China, customer demand across our product and service categories has been strong to date and in line with our expectations.”
And just like that, AAPL stock’s bearish “selloff” was over. As you can see in the daily chart below, the stock started rallying shortly after the market opened, and it is still moving higher today.
We don’t expect it will take much longer for Apple to completely fill the bearish gap that materialized on Tuesday morning and move on to higher highs.
After all, the S&P 500 seems to have already forgotten all about Tuesday’s bearish kerfuffle. The index has already established a new all-time intra-day high (see below).
So, why is Wall Street immune to Covid-19?
We believe stock traders on Wall Street are resilient in the face of this health crisis for two reasons:
- The U.S. economy is still going strong.
- Where else are investors going to put their money?
Strong U.S. Economy
To get a sense for just how strong the U.S. economy is, here are a few recent stats:
- The Bureau of Labor Statistics (BLS) reported that the U.S. economy created 225,000 new jobs during January.
- The BLS also reported that the average hourly earnings for employees has risen 3.1% during the past 12 months.
- The latest Institute of Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) showed the U.S. economy is expanding after five months of contraction.
- The BLS has also reported that inflation is still under control with the core Consumer Price Index (CPI) — which includes all prices except those for food and energy — only rising at an annualized rate of 2.3%.
- The latest Census Bureau data show that January retail sales were up 4.4% from the same month last year.
In other words, more people have jobs that are paying a bit more than they used to, and those people are happily spending the additional money they are earning. This is leading to increased production, but it isn’t driving prices much higher. That means the Federal Reserve can continue trying to stimulate the economy by leaving interest rates low.
Where Else Can Investors Put Their Money?
When you look at other global financial markets, you’ll see there’s no better place to put your money right now than the U.S. stock market. Consider the following:
- Bonds, be they corporate bonds or government bonds, are offering woefully low yields.
- The European stock market is trying to process a decline in German manufacturing, instability in European banks and the unknown impacts of Brexit.
- The British stock market is navigating Brexit and the potential of London losing its dominance as a financial hub.
- The Chinese stock market’s volatility is ramping up.
- Commodity prices, for example the price of crude oil or copper, are taking a beating.
When you look at the other options out there, it’s not hard to see why investors around the world are putting more of their money in U.S. stocks.
Plus, the move by an increasing number of retail investors into robo-advisories and index-based exchange-traded funds (ETFs) means more and more money is flowing into the stock market every day.
The Bottom Line on the Coronavirus
Enjoy the bullish uptrend. As we’ve said in the past, it’s going to be with us for a while, even if there are little hiccups along the way.
John Jagerson & Wade Hansen are just two guys with a passion for helping investors gain confidence — and make bigger profits with options. In just 15 months, John & Wade achieved an amazing feat: 100 straight winners — making money on every single trade. If that sounds like a good strategy, go here to find out how they did it. John & Wade do not own the aforementioned securities.
