What a week. I don’t need to be reminded that we’re only halfway through it, but WHAT A WEEK. The Dow (INDEXDJX:DJI) has entered a bear market, the S&P (NYSEARCA:VOO) is on its way to join it, Boeing (NYSE:BA) is down almost 60% from this time last year, President Trump has blocked travel from Europe, and the NBA has suspended the remainder of its season. While a couple of basketball games doesn’t seem as important when placed beside such major events, I’m going to explain why the NBA’s actions represent as much, if not more, significance in the grand scheme of things.
The Demand Issue
Up until now, our main concerns surrounding the effect of the coronavirus have been on the supply side. It’s why companies like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Google (NASDAQ:GOOG) have had to diversify their supply chain, reducing their dependence on Chinese production lines. The disruption the virus had on output from China forced these companies to revise their outlook for the quarter as production targets were assumed to be missed. This was when the virus was strictly a Chinese issue. Now that it has been christened a global pandemic, there is a much bigger concern facing us: the lack of demand.
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Now I know there are many exceptions like the travel industry, with stocks like Carnival (NYSE:CCL), American Airlines (NASDAQ:AAL), and Delta Airlines (NYSE:DAL) all taking a battering as customers have dried up, but on the whole, it was a localized problem. Supply chain and travel would be affected, but for the most part, business as normal. The pandemonium of this week has shown that is no longer the case, and I feel that the NBA’s suspension is the first domino to fall. As cities begin to put bans on gatherings of over 1,000 people, the fallout will be severe and far-reaching. Discretionary spending in the U.S. is set to decrease drastically.
This chart is becoming my harbinger of doom and gloom, but if you look through it, there are very few consumer-facing businesses that go unaffected. From the top 5 alone I see a number of MyWallSt stocks that will suffer due to this lack of demand: Disney (NYSE:DIS), IMAX (NYSE:IMAX), Eventbrite (NYSE:EB) and Brown Forman (NYSE:BF.B) to name a few. As the fears worsen and the disease spreads, the pressure mounts on these companies and the economy as a whole.
The NBA’s season is the canary in the coal mine, and what will follow is a scary thought for many. While it begins with a ban on public gatherings, it will not end there. One need only look to Italy to see the level of impact this virus can have on the economy. I wish I could sign off on this piece with a bit more optimism, but I really think the coronavirus will have a grave and extended impact on the global economy.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Financial Analyst at MyWallSt
Michael's first and favorite stock is Square, which he sees becoming a massive player in the payments industry and a leader in the war on cash.