Jittery investors sold an opening bounce today and the major averages tumbled into the close erasing the gains for the year. Selling was broad based for a second straight day with every sector red led down by more than -4% drops in Energy (XLE), Materials (XLB) and Industrials (XLI). Economic data was weaker than expected with the February Richmond Fed Mfg Index coming in at -2 vs. 13 consensus, while February Consumer Confidence was strong at 130.7, but below estimates of 132.5. Earnings were mostly upbeat with Home Depot (HD) and LHI Homes (LGIH) easily topping estimates but selling off. The major averages took another leg down in the afternoon after the CDC warned that there was a strong chance that an extremely serious outbreak of the Coronavirus would occur in the US. Yields also fell during the session with the 10-year Treasury hitting a low of 1.32%. The 30-year Treasury yield hit a record low of 1.79% intraday. The DJ Transportation Index was the worst performing index losing -4.27% as investors shunned travel stocks. Airlines were off more than -10% over the two day selloff. The DJIA closed the day down 879.44 points (-3.15%) at 27081.36, while the S&P 500 dropped 97.69 points (-3.03%) to 3128.21. The NASDAQ lost 255.67 points (-2.77%) and finished at 8965.61. The small cap Russell 2000 sank -3.45% but found support at its 200-day moving average.

Breadth was bearish with declining issues beating advancing issues 9.5:1 on the NYSE and 6:1 on the NASDAQ. Volume was extremely heavy and declining volume was 89% on the NYSE and 81% of the NASDAQ. VIX jumped 2.82 point (+11.27%) and finished at 27.85 after briefly hitting 30. Crude oil prices fell 1.65 (-3.21%) breaking support at 50, and the March contract closed at $49.78 a barrel. Gold saw profit taking after its rally and lost 28.30 (-1.69%) to $1647.50 an ounce.

Fear of the unknown had investors cashing in stocks and the major averages finished close to the lows of the day. Unlike other market stumbling blocks however, the Coronavirus outbreak isn’t likely to be a V-shaped recovery. Q1 and Q2 earnings and revenues need to be adjusted but at this stage it won’t be happening over the near term. That should bring the 200-day moving average into play for the S&P 500 and NASDAQ. Also weighing on the market is the likelihood that Bernie Sanders will get the Democratic nomination for President. That is causing pockets of the market to selloff, such as defense stocks and healthcare. There’s no need to try and catch a falling knife. Patience will be rewarded.

Earnings releases to watch for on Wednesday include: 3D Systems (DDD), Adaptive Biotechnologies (ADPT), Acadia Pharmaceuticals (ACAD), Apache Corp (APA), Cars.com (CARS), Clearwater Paper (CLW), l Brands (LB), Lowe’s Cos. (LOW), Marriott International (MAR), Medifast (MED), NV5 Global (NVEE), Papa John’s International (PZZA), Square Inc (SQ), TJX Companies (TJX), Universal Health Service (UHS) and Wendy’s Co (WEN).

By David L. Blake, CMT