The coronavirus from China has gone global over the past few weeks, and made a big move into the U.S. As it has, U.S. stocks have fallen off a cliff, and at a record pace. In less than a month, the S&P 500 has dropped 25%.
Naturally, investors should have a ton of questions right now. How does the coronavirus impact the U.S. economy? How does it impact U.S. stocks? Are stocks done falling? Will they bounce back? If so, when? Should I buy the dip? Should I move to all cash?
But, in some senses, I think we can answer all those questions by simply answering one, very important question: how does the coronavirus impact the five biggest U.S. stocks?
The five biggest U.S. stocks — Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook (NASDAQ:FB) — account for about 20% of the S&P 500’s total market capitalization. They have reach across the entire world economy, and span multiple industries from hardware to cloud computing to e-commerce and digital advertising.
Thus, if we know how the coronavirus is impacting these large-cap stocks, then we have a solid glimpse into how the outbreak is impacting the whole economy and the whole stock market.
Without further ado, then, let’s take a look at how the coronavirus outbreak is directly impacting America’s biggest companies.
How the Coronavirus Is Impacting Large-Cap Stocks: Apple (AAPL)
Market Cap: $1.1 trillion
% Decline over Past Month: 20%
The world’s largest company with a market cap of $1.1 trillion, Apple, has seen its stock price decline 20% over the past month on two big concerns.
First, the coronavirus has created huge supply chain disruptions. Apple’s supply chain goes through China. When COVID-19 broke out in China, the country closed essentially all of its factories, hugely disrupting Apple’s iPhone, Mac, iPad and AirPods supply chains. Some of those factories are starting to come back online now as COVID-19 dies down in China. But, full production isn’t expected until April or May.
Second, demand for Apple products will fall so long as the virus keeps spreading. That is, so long as consumers are worried about getting sick and aren’t going outside (either by choice or by force), then they won’t be shelling out hundreds of dollars for a new phone, or a new computer. Apple’s hardware revenues should consequently take a big hit so long as the pandemic keeps getting worse.
The coronavirus has created supply chain disruptions and demand headwinds for Apple. Those supply chain disruptions appear to be improving as China has slowed the virus’ spread. Demand headwinds, though, are only getting worse, because the virus is growing exponentially everywhere else.
If other geographies follow in the footsteps of China, the virus will stop spreading virulently by April or May, demand headwinds will improve and AAPL stock will bounce back. But, that’s a huge if that depends on coronavirus conditions globally improving like they have in China.
Market Cap: $1.1 trillion
% Decline over Past Month: 21.4%
The only U.S. company that rivals Apple in terms of size is Microsoft, with a very comparable market cap that hovers just under $1.1 trillion. Much like AAPL stock, MSFT stock has dropped by 20% over the past month on coronavirus-related supply chain disruptions and demand headwinds.
That is, Microsoft — like Apple — runs a big part of their supply chain through China. Factory closures there have significantly disrupted Microsoft’s ability to produce various hardware products, like computer accessories. Concurrently, there is concern that so long as the virus keeps spreading, enterprises will curtail their spending, which will lead to reduced demand for Microsoft’s enterprise cloud solutions, like Office 365 and Azure.
But, on the flip-side, there is optimism that the coronavirus promoting work-from-home practices will lead to increased demand for Microsoft’s cloud-based, virtualized work services, like Microsoft Teams.
The coronavirus, then, while mostly bad news for Microsoft, isn’t all bad news. MSFT stock should be able to weather the coronavirus storm better than most other stocks. Even further, once the virus stops spreading virulently across the globe, enterprise spending trends should rebound dramatically on the back of tons of fiscal stimulus, which should spark an equally dramatic rebound in Microsoft’s cloud business and stock price.
Market Cap: $845 billion
% Decline over Past Month: 20.6%
E-commerce and cloud giant Amazon has fared better than most during the market’s COVID-19 sell-off because the coronavirus has created both headwinds and tailwinds for the company.
On the headwinds side, it’s obvious that if consumers and enterprises cut back on spending amid coronavirus hysteria and uncertainty, Amazon’s e-commerce and cloud businesses will both see reduced demand. Growth will slow. That’s not a good thing.
But, on the flip-side, Amazon is an e-commerce platform. Consumers may shop less amid this outbreak. But any shopping they do, will be done online. So Amazon should win a greater share of the retail sales pie during the outbreak. Sure, that pie is smaller. But, it’s still something.
And it’s largely why AMZN stock is down “just” 20.6% over the past month.
Going forward, Amazon stock will bounce back because this company’s long-term growth narratives in e-commerce and cloud computing remain robust. It’s just a matter of “when” the rebound will happen. That comes down to when the coronavirus will be contained in the U.S. Assuming the virus follows a similar trajectory as it has in South Korea and China, then that should happen come April or May.
Market Cap: $790 billion
% Decline over Past Month: 23.6%
Big tech giant Alphabet has built a $790 billion global empire on the back of digital advertising and cloud computing. Unfortunately, demand for both of those services is expected to decline significantly amid the coronavirus outbreak.
We’ve already talked about declining cloud computing demand. Amid economic and investment uncertainty, enterprises will cut back on how much they spend, leading to reduced demand for enterprise cloud services like Google Cloud.
Meanwhile, on the digital ad side, if consumers curtail their spending amid the outbreak, then advertisers will be forced to respond by curtailing their ad spend, too. Lower ad spend means less ad dollars going to Google Search and YouTube.
Overall, the coronavirus is really nothing but bad news for Alphabet. So long as it sticks around, GOOG stock will keep falling.
But, as stated earlier, there is reason to be optimistic that this virus won’t sick around for that long (maybe another month or two). Once it fades, cloud computing and digital ad demand will rebound, and so will GOOG stock.
Market Cap: $450 billion
% Decline over Past Month: 23.0%
Last, but not least, on this list of biggest U.S. stocks is Facebook, who — much like Alphabet — has built a multi-hundred billion dollar empire on the back of digital ads.
Also much like GOOG stock, FB stock has stumbled in a big way over the past month on concerns that increased coronavirus hysteria across the globe, will lead to reduced consumer spend, which will lead to reduced ad spend and lower revenues for Facebook.
That may be true. But, what is also true is that consumers, cooped up in their homes all day, are spending more time than ever on Facebook, Instagram, WhatsApp, and Messenger.
What good is increased engagement if ad dollars are going down? It lays the foundation for a big revenue recovery once the virus fades and advertisers re-up their spending, because ad dollars chases eyeballs, and Facebook has more eyeballs than ever.
Big picture — Facebook stock will struggle so long as the virus continues to spread. But, once spread slows and ad spending trends rebound, FB stock looks positioned to roar higher.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long FB, and may initiate a long position in AAPL, MSFT and AMZN within the next 72 hours.