It’s a shortened trading week, with major U.S. markets having been closed Monday in observance of President’s Day. The coronavirus, Federal Open Market Committee (FOMC) meeting minutes and Walmart earnings will take the spotlight the remainder of the week.
On Monday, Apple (AAPL) reported that it will not meet its revenue guidance for the March quarter due to the coronavirus outbreak affecting both production and demand in China. The company said it is taking longer than expected to ramp up production. It had forecast $63 billion to $67 billion in revenue for the quarter ending in March, ahead of estimates of $62.4 billion.
The coronavirus, formally known as COVID-19, has killed more than 1,500 people and infected more than 67,000 globally. Over the past two months, the deadly coronavirus has been wreaking havoc around the world. World markets are being rattled, and multinational companies are starting to feel the impact.
In addition to Apple, tech companies, including Cisco (CSCO) and Nvidia (NVDA); consumer-facing companies like Nike (NKE), Under Armour (UAA), and Esteé Lauder (EL); plus airlines, casinos and cruise operators have said that the coronavirus will meaningfully impact their businesses and supply chains.
“We continue to believe the scope of crisis in China remains under appreciated with significant potential economic impact as a result of decreases in consumption, but perhaps more importantly a sizable disruption to supply chains for many industries,” Raymond James Chief Investment Officer Larry Adam wrote in ‘Weekly Headings.’ He continued, “When China will remove the travel restrictions and allow widespread reopening of factories remain open questions and key to determining future Chinese economic growth impacts.”
Even as the threat of coronavirus shows no end in sight, it may be too early to tell the actual material impact on companies. However, in order to understand the current situation on a corporate level, FactSet searched the term “coronavirus” in earnings conference call transcripts of the 364 S&P 500 companies that conducted fourth quarter earnings conference calls from January 1 through February 13.
“Of these 364 companies, 138 (or 38%) cited the term ‘coronavirus’ during the call. At the sector level, the Industrials (26), Information Technology (26), and Health Care (24) sectors have seen the highest number of companies discussing ‘coronavirus’ on earnings calls of all eleven sectors. For the 138 companies that discussed the coronavirus on their earnings calls for Q4, the average revenue exposure to China is 7.2%. For all S&P 500 companies, the average revenue exposure to China is 4.8%,” according to FactSet.
Earnings season is winding down considerably with 77% of S&P 500 companies having reported fourth-quarter results. Among the companies reporting this week, investors will be paying close attention to retail behemoth Walmart when it reports holiday quarter results Tuesday before the bell. Analysts polled by Bloomberg expect Walmart to report adjusted earnings of $1.44 per share on $142.57 billion in revenue.
Walmart’s announcement Tuesday will provide clues on how the retailer fared during the important holiday shopping season. One month ago, rival Target (TGT) shocked investors when it reported a shorter-than-anticipated holiday shopping season. Same-store sales, a key industry metric, rose a modest 1.4% in November and December, compared to 5.7% growth during the same period a year ago.
While the Wednesday release of the FOMC’s January meeting minutes likely won’t include many surprises, it would provide some clarity.
“[The minutes] may provide some further details on the ongoing strategy review or the Fed’s plans to dial back its repo auction offerings and slow the pace of its Treasury bill purchases,” Capital Economics wrote in a note Feb. 14. “The strategy review won’t be completed until mid-year, so we are unlikely to get a strong steer in these minutes. But it is possible that officials discussed tweaks to the policy framework – including switching to an average inflation target or, at the very least, including language in the statement that signals the Fed would be more open to allowing inflation to overshoot, after a decade of undershooting. The statement issued after this last meeting included a change that the Fed wanted to return inflation ‘to’ the target rather than just ‘near’ it.”
Meanwhile, economists at Credit Suisse pointed out that commentary regarding global growth and underlying risks will also be of importance in the meeting minutes.
“Chair Powell sounded optimistic about an ongoing stabilization in global growth but has recently singled out the coronavirus outbreak as a risk to global growth. The minutes likely showed that officials see a temporary negative shock to Chinese growth, a limited impact to the US, and the need to closely monitor developments. A couple of participants may see a need to cut rates if downside risks materialize, although Fedspeak since the meeting suggest officials are content with the current stance of policy for now. Markets are currently priced for about one and a half rate cuts by the end of the year,” the firm said in a note Feb. 13.
Monday: Markets closed in observance of President’s Day
Tuesday: Empire Manufacturing, February (5.0 expected, 4.8 in January); NAHB Housing Market Index, February (75 expected, 75 in January); Net Long-term TIC Flows, December ($22.9 billion in November); Total Net TIC Flows, December ($73.1 billion in November)
Wednesday: MBA Mortgage Applications, week ended Feb. 14 (1.1% prior); Housing Starts, January (1.415 million expected, 1.608 million in December); Building Permits, January (1.450 million expected, 1.420 million in December); PPI Final Demand month-on-month, January (0.1% expected, 0.2% in December); PPI excluding Food & Energy month-on-month, January (0.2% expected, 0.1% in December); PPI Final Demand year-on-year, January (1.7% expected, 1.3% in December); PPI excluding Food & Energy year-on-year, January (1.4% expected, 1.1% in December)
Thursday: Philadelphia Fed Business Outlook, February (12.0 expected, 17.0 in January); Initial Jobless Claims, week ended Feb. 15 (210,000 expected, 205,000 prior); Continuing Claims, week ended Feb. 8 (1.698 million prior); Bloomberg Consumer Comfort, week ended Feb. 16 (65.7 prior); Leading Index, January (0.4% expected, -0.3% in December)
Friday: Markit U.S. Manufacturing PMI, February preliminary (51.5 expected, 51.9 prior); Markit U.S. Services PMI, February preliminary (53.5 expected, 53.4 prior); Markit U.S. Composite PMI, February preliminary (53.3 prior); Existing Home Sales, January (5.45 million expected, 5.54 in December)
Wednesday: Boston Beer (SAM) after market close
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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