The coronavirus outbreak has wreaked havoc in the global stock market over the past couple of weeks. In fact, it has transformed a booming stock market into a nightmare and has ended the longest bull market run for U.S. stocks in the history. The Dow Jones slipped into a bear market while S&P 500 and Nasdaq are on the brink of entering it.
Sluggish trading is likely to continue as the World Health Organization has declared the outbreak a pandemic for the first time. The disease has spread to 114 countries, infecting more than 118,000 people worldwide and causing over 4,100 deaths. Further, President Donald Trump has suspended all travel from Europe to the United States for 30 days beginning Mar 13 midnight, with the exception of the United Kingdom. The latest developments have deepened worries over the disease on the economy (read: ETFs to the Rescue as Coronavirus Wreaks Havoc).
While all the corners of the stock world are experiencing steep declines, a few are witnessing huge swings owing to the fast spreading deadly virus. As such, we have highlighted such sectors and their ETFs & stocks that are most exposed to the damage caused by this malaise.
Oil has been affected by the outbreak, which has resulted in a slowdown in energy consumption amid a well-supplied oil market. Additionally, the talks between Saudi Arabia and Russia to agree on an output cut fell apart leading to a crash in the oil price. This is because Saudi Arabia vowed to boost its oil-production starting next month to help fight a price war with Russia, which hinted that it could boost output and could survive low oil prices for 6-10 years (read: Global Oil Price War Begins: ETFs in Focus).
The dual attack resulted in a freefall in oil price on Mar 9. Crude oil tumbled 26% at the close on Mar 9 while Brent plunged 24%. The drop was the biggest one-day percentage decline since the first Gulf war began in 1991. This led to terrible trading in the energy sector. As such, SPDR S&P Oil & Gas Equipment & Services ETF XES was the worst performer in the ETF world, losing around 36% in a month. The fund has a Zacks ETF Rank #5 (Strong Sell). In the stock world, Magellan Petroleum Corporation TELL, with a Zacks Rank #3 (Hold), shed around 85% in a month.
However, the hopes of stimulus across the globe could revive oil demand and provide some support to prices.
The travel bans and the resultant drop in near-term demand has hurt the airline sector badly. In addition, the wave of cancellations of major events and conferences is a concern. U.S. Global Jets ETF JETS, which offers investors access to the global airline industry, including airline operators and manufacturers from all over the world, lost nearly 29% in a month. It has a Zacks ETF Rank #3. Meanwhile, Zacks #2 (Buy) Ranked Spirit Airlines SAVE tumbled 48.1% in a month.
Banking sector has been struggling due to the dual attack of tumbling yields and oil price collapse. The US Treasury yield curve fell below 1% for the first time ever as yields on the 10-year and 30-year bonds slumped to record lows. The Fed has cut interest rates by half-percentage point to the range of 1.00-1.25%. This represents the first emergency rate cut and the biggest one-time cut since 2008 (read: High Yield Dividend ETFs & Stocks to Buy as Fed Cuts Rate).
Falling rates tend to hurt banks because they pressure the spread between what lenders pay out to depositors and what they collect from borrowers. Further, the banks, which are highly exposed to the energy sector, are increasing their loan reserves due to a prolonged decline in crude oil prices. The higher provisioning to cover the bad loans of the energy companies are weighing on their overall earnings picture and could result in deteriorating credit quality. The situation could worsen over the coming months if oil price continued to drop.
Invesco KBW Bank ETF KBWB has plunged 22.7% and Fifth Third Bancorp FITB saw a substantial decline of 34.7% in a month. The duo has a Zacks Rank #3 (read: Should You Buy Bank ETFs Now? Let's Find Out).
The leisure industry also bore the brunt of the malaise due to restricted travel with Invesco Dynamic Leisure And Entertainment ETF PEJ tumbling 23% in a month. It has a Zacks ETF Rank #3. The Zacks Ranked #3 Cumulus Media Inc. CMLS has plunged 44.3% in a month.
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Fifth Third Bancorp (FITB) : Free Stock Analysis Report
Cumulus Media, Inc. (CMLS) : Free Stock Analysis Report
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
SPDR S&P Oil & Gas Equipment & Services ETF (XES): ETF Research Reports
U.S. Global Jets ETF (JETS): ETF Research Reports
Invesco Dynamic Leisure and Entertainment ETF (PEJ): ETF Research Reports
Invesco KBW Bank ETF (KBWB): ETF Research Reports
Magellan Petroleum Corporation (TELL) : Free Stock Analysis Report
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