A certain level of risk-off behavior permeated financial markets this past Friday. Profit taking after a fantastic week for equity prices had not only been expected but well telegraphed ahead of time. Some reduction in overall exposure had been in order as the impact of the Wuhan coronavirus remains the lead story for global health officials, policy makers, and economists.
For most of last week, U.S. equity markets had shrugged off the threat of what a potential global pandemic could do in terms of economic growth or corporate revenue generation. Even allowing for Friday’s action, the Nasdaq Composite experienced a again of more than 4% for the week… the S&P 500 more than 3%. Even the Dow Jones Transportation Average had a nice enough week (+2.75%), something that most traders probably would not have expected one week ago.
For the week, the Information Technology sector led the way, with the Technology Select Sector SPDR ETF (XLK) running 4.4%. Within that sector, the Dow Jones U.S. Software Index, with very little inherent exposure to the Chinese economy, screamed 5.7% higher. Very interestingly however, also within the sector, semiconductors as an industry grouping would be highly exposed to China, but still did very well last week. Both the Philadelphia Semiconductor Index (SOX), and the Dow Jones U.S. Semiconductors Index saw identical 4.16% weekly increases, even after both saw Friday decreases of more than 2%.
Asian markets opened lower on Monday morning (Sunday night here in NY), as certain companies in China tried to go back to work while regionally anything beyond working from home is still not possible. U.S. equity index futures markets traded lower overnight as well. As the PBOC (People’s Bank of China) announced the first batch of special re-lending funds to qualifying national and regional banks in