How The Coronavirus May Be Impacting Your Portfolio

Daniel Laboe

The coronavirus is having a rippling impact on businesses across the globe as the world’s most populated country and second-largest economy shuts down cities to contain this new contagion. This is impacting supply chains across industries and cutting demand in a massive consumer market.

Apple AAPL announced that it was revising its March quarter revenue guidance, saying that it will be unable to meet current expectations. This is following the company’s best quarterly sales to date.

Apple is being hit on both the supply and demand side. iPhone manufacturing plants were initially shut down outside of the Hubei Provence (the ostensible origin of the coronavirus) and have been slow to ramp production back to normal levels, which is impacting the global iPhone supply. Apple was also forced to shut down all its China-based Apple Stores, which will undoubtedly weigh heavily on the firm’s demand. These concerns are only near term and shouldn’t have any systemic effects that need to worry investors.

Apple is far from the only American company that is being affected by this devastating virus. Starbucks SBUX and McDonald’s MCD have both shut down a large number of locations in the cities that have been most affected. These shutdowns will undoubtedly have a negative bearing on this upcoming quarterly report. Long-term impacts are still yet to be seen, but I predict that normal operations will resume once the virus is under control.

Supply chains of chip-making companies like Nvidia NVDA and Micron MU, who have manufacturing in China, are slowing production across the country. China is also the world’s largest chip buyer, so this virus will likely temporarily reduce demand. The virus is likely just pushing demand out, not getting rid of it. I don’t expect that chipmaker shares will have any downside from the coronavirus. Chip stocks have been driving higher since the coronavirus outbreak with investors evidently not concerned.

Lasting Effects?

Is the coronavirus going to have a lasting impact on the world economy, or is this just a near term hurdle? Short-term hurdles with little effect on long term objectives will likely not have a substantial push on a firm’s share price.

As an investor, we need to contemplate whether the coronavirus will have long term implications on our investments, even after the virus has run its course. One space that I believe this virus may have lasting effects on is luxury cruise lines.

The Diamond Princess, a cruise that never should have departed the mainland, left Yokohama, Japan, on January 20th with 1,045 crewmembers, 2,665 healthy passengers, and one infected passenger. Two weeks later, 10 passengers tested positive for the virus, and the whole ship was put under quarantine. All passengers were confined to their small cabins. This quarantine has been lasting for over 2 weeks in what sounds to me like the worst type of cabin fever imaginable. Today there are 624 confirmed cases on the ship, and the figure continues to climb as rescue efforts are undertaken.

I think this story has created cruise ship fear across the world, and these stocks have taken a bit of a tumble because of it. Below you can see that shares of Carnival Corporation CCL and Royal Caribbean Cruises RCL have broken down over 17% in the past month of trading.

Just the thought of being stuck in a small cruise cabin for weeks at a time, not knowing when you’ll be able to leave or whether you or your family is infected with a deadly disease, is enough to keep me away from cruises for some time. The unsettling story about the Diamond Princess will undoubtedly make waves for cruise lines, and they could be facing lasting demand shortages.

Final Thoughts

The coronavirus is crippling China’s economy and having impacts on global US corporations as well. The silver lining here is that the negative effect is likely only temporary, and with China’s economy on its knees, it may give the US some leverage in trade negotiations.

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