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With the Dow, S&P 500 and Nasdaq notching gains last week, investors are increasingly wondering whether the coronavirus threat to US markets has ended. They may be jumping the gun.
For American companies with lots of exposure to China, the worst might not be over, Goldman Sachs warned in a recent note to clients. It called out Yum China (which makes all its sales in China), Wynn Resorts (75% of sales) and chipmaker Qorvo (74%) as firms who are under pressure.
One example: Wynn Resorts is losing millions of dollars per day as casinos in Macao remain closed. Its stock fell more than 6% in January and is up just 0.6% this month. The S&P 500, for comparison, is up 3.2% this month.
Goldman Sachs also points to the large number of consumer-facing US companies that have had to halt some operations in China.
On the list: Royal Caribbean and Carnival have had to suspend cruises. Starbucks has closed more than half its stores in China. McDonald's has shut hundreds of restaurants in Hubei province. And Delta, American and United have suspended flights for weeks to come.
Some US companies have issued profit warnings to investors, citing coronavirus, Goldman observed. That includes orthodontics company Align Technology, adhesive maker Avery Dennison and Nike.
The takeaway: Broader resilience to pandemic fears may help hide weakness among specific stocks, with reliance on China's market remaining a key vulnerability.
Another view: The feebleness among China-focused companies is actually part of the reason US indexes have been moving higher, since it pushes investors toward large companies with proven records on growth, Morgan Stanley strategist Michael Wilson told clients on Sunday. Buying shares in such companies just gives the S&P 500 more fuel.
"The coronavirus provided a big enough scare for the markets to experience their largest correction since early October," Wilson said. "However, looking at a chart of the S&P 500 or the Nasdaq, one could say, 'What correction?'"
The latest: The Wuhan coronavirus has killed 910 people globally, the vast majority in mainland China, and infected more than 40,000 people.
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