Plus, traders are pricing in a rate reduction from the Fed at its March meeting, Beyond Meat shares are tanking even after crushing sales estimates, and Big Lots shares are down more than-27% after the discount retailer warned of a “challenging first quarter of 2020.”
Stocks fell to start Friday with the Dow falling 1,000 points, or more than 4%. The S&P 500 also slid 4%, while the Nasdaq traded 3% lower.
The Dow dropped nearly 1,200 points on Thursday, its biggest one-day point drop ever, while the S&P 500 is down more than 15% from its record high reached last week as investors flee equities in favor of bond market exposure on fears over the rapidly-spreading coronavirus. The 10-year Treasury yield—which moves inversely to price—has plunged to a new record low this morning, trading around 1.16%. “Markets seem to view an impossible trade-off: draconian quarantine measures triggering recession or a pandemic,” said Ralf Preusser, global head of rates strategy at Bank of America Merrill Lynch. “Either scenario is extreme but it’s to early to fade rate moves.” Several bonds along the curve were at record low yields to start Friday. “Investors are selling stocks first and asking questions later,” said Keith Lerner, SunTrust’s chief market strategist, in a note. “We are seeing signs of pure liquidation. ‘Get me out at any cost’ seems to be the prevailing mood. There is little doubt the coronavirus will continue to weigh on the global economy, and the U.S. will not be immure. There is much we do not know. However, it is also premature to suggest the base case for the U.S. economy is recession.”
Amid the market rout, traders are increasingly pricing in a rate reduction from the Fed in the coming months. According to CME’s FedWatch Tool, the fed funds futures market is betting on a 100% chance of a rate cut at the Fed’s March policy meeting, and see the possibility of three reductions in 2020. However, St. Louis Federal Reserve President James Bullard said this morning that the coronavirus outbreak would have to reach pandemic levels before he would consider cutting interest rates. “Further policy rate cuts are a possibility if a global pandemic actually develops with health effects approaching the scale of ordinary influenza, but this is not the base at this time,” Bullard said in a speech. BMO Capital’s head of U.S. rates wrote in a note from Friday, “The Fed can’t do anything to stop the spread of COVOD-19, but they also can’t stand idly by in the face of a global equity correction. The market believes the Powell Put is alive and well; the current episode will function as an important litmus test for this core tenet.”
The World Health Organization said today that it is increasing the risk assessment of the coronavirus to “very high” as the outbreak spreads to at least 49 countries in just a matter of weeks. “We have now increased out assessment of the risk of spread and the risk of impact of COVID-19 to very high at global level,” said WHO director-general Tedros Adhanom Ghebreyesus. Confirmed cases of the virus have surged past 83,700 globally, while total deaths attributed to the virus are now more than 2,859. The Japanese island of Hokkaido has declared a state of emergency due to the outbreak. New Zealand and Lithuania reported cases, while Nigeria has confirmed the first case of the virus in sub-Saharan Africa. The total number of cases in South Korea has surpassed 2,300, and a German town near Cologne has been quarantined. Hong Kong has also reported the first case—albeit mild—of COVID-19 in a pet dog of a patient there. Meanwhile, the U.S. has expanded its testing criteria for travelers returning from countries including Iran, Italy, Japan, and South Korea.
In earnings news, Beyond Meat shares have tanked more than -18% this morning even after the alternative-meat company crushed sales estimates in its fourth quarter. Analysts had expected sales of $81 million for the quarter, while the company saw $99 million in sales. However, investors were looking for more than Beyond Meat’s guidance for $500 million in sales during fiscal 2020. Foot Locker sales missed estimates in the fourth quarter due to “softer than expected” demand during the holiday season. Still, FL shares are up more than 6% this morning as the company reported $1.63 adjusted earnings per share, beating analysts’ estimates for $1.58 per share.
Big Lots shares have plummeted -27% so far Friday after the company reported disappointing Q4 results. “We expect a challenging first quarter of 2020,” Big Lots CEO Bruce Thorn warned in a statement, “due in part to upfront investments in our higher-return growth initiatives, combined with a slow start to the quarter and the sales impact of supply chain disruption related to the coronavirus.” And Wayfair shares are down just over -13% at the time of writing after the online furniture retailer reported widening losses during the holiday quarter, with annual net losses doubling to $985 million in 2019. Wayfair also said that it’s quarter-to-date revenue growth is trending just under 20%, impacted by supply chain issues from China—where the company gets half of its products from—due to the coronavirus. If that growth rate tracks through the end of the quarter, it would mark the slowest growth for Wayfair in its history as a public company.
Stocks We’re Watching
Gain Capital Holdings (NYSE: GCAP): Gain Capital shares jumped nearly 67% yesterday after the company announced that it has entered into a definitive agreement to be acquired by INTL FCStone Inc in an all-cash deal valuing the Gain Capital at $236 million. “GAIN’s business fits naturally within INTL FCStone’s diversified and scaled franchise, and our shareholders will benefit from this combination by receiving a substantial premium in an all-cash transaction. GAIN was founded over 20 years ago with the intention of providing traders with low-cost access to foreign exchange markets. By joining INTL, we see an incredible opportunity to leverage their capabilities and ecosystem of products, and to deliver an even more comprehensive offering to our customers. Bringing together GAIN’s expertise in serving the retail customer and INTL’s unparalleled access to the financial markets creates an exciting value proposition and enables the combined group to serve a wider range of customers,” said Glenn Stevens, Chief Executive Officer of GAIN Capital Holdings, Inc. “After a thorough evaluation of the options available, the Board of Directors is confident that this transaction will provide a significant opportunity for our stockholders to realize value for their shares while providing the best path forward for GAIN’s business, employees and customers.”
AAON Inc (NASDAQ: AAON): AAON shares are up more than 16% so far this year, and gained 25% yesterday after the maker of air conditioning and heating equipment reported positive fourth quarter results, including a year-over-year gain in revenue of 9.1% to $122.57 million. “Our increase in net sales is attributable to our continuing investment in new manufacturing equipment that has allowed us to capitalize on our existing workforce as well as reorganize production resources at our Tulsa facilities. We are witnessing operational and financial improvements as a direct result. Combined with our 2018 sales price increases, the result has been record sales for the year of 2019, an increase of 8.2%, as compared to $433.9 million in 2018,” said AAON President Gary Fields. “In addition to improvements in gross profit, we continue to reduce other costs as evidenced by the decrease in warranty claims paid for the year down 13.4% from 2018. With our high backlog containing the 2018 price increases combined with our continual improvements in operational capacity and efficiency, we expect to witness improvements in both our sales and earnings in 2020.”