Stocks Down For The Week On Coronavirus And Profit Taking
Stocks closed lower on Friday, and lower for the week.
Headlines point to continuing coronavirus concerns as the reason for the pullback. And while that's true on the surface, I think it's mostly being used as an excuse to pull profits after an auspicious start to the new year.
At the highest point this year, the Dow was up 3.6%, the S&P was up 5.0%, and the Nasdaq was up a whopping 9.6%, all in less than two short months. And that's on top of the spectacular finish to 2019. So it was totally expected that at some point, we'd see some profit taking. And the coronavirus concerns gave traders the perfect opportunity to do just that.
Don't get me wrong, there will indeed be an economic impact. But so far, analysts are still only estimating that the virus will shave just two tenths of one percent off of Q1 GDP (and maybe another two tenths later in the year). And since S&P companies only get about 6% of their revenue from China, you can see why the impact to U.S. stocks is expected to be minimal.
Nonetheless, once it looks like the worst of the outbreak is over, and travel restrictions, which affects both people and goods, are lifted, stocks are expected to soar as pent-up demand is unleashed.
In the meantime, near-term support for the S&P comes in at 3,306.92 (which is a gap left on the chart from 2/4); then 3,268.44 (which is a gap from 2/3); then 3,205.48 and 3,182.68 (both gaps going back to 12/19 and 12/13 of last year). But the nearest support level is only 0.92% (less than 1%) under where we are today. And the furthest support level mentioned above is still only 4.6% away from current prices. And pullbacks of that magnitude are typically viewed as ordinary and healthy.
That's why I would be a buyer on any dip.
But also a buyer on strength as we could easily see stocks power higher from here.
After all, these are historic times for our economy and historic times for the market. And that's why I'm expecting another 25-30% gain in stocks again this year.
So make sure you're taking full advantage of it.
And if you're lucky enough to pick up some great stocks at a temporarily cheaper price, even better.
See you tomorrow,
Kevin Matras
Executive Vice President, Zacks Investment Research
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