Dow Jones Industrial Average Drops as Market Shrugs Off Coronavirus Spike - Barron's

A slip and a stumble. China changed how it tests for coronavirus, causing the number of cases to jump—and stocks to fall. Copper, oil, and gold, however, traded higher, so it can’t be all bad. In today’s After the Bell, we...

•...explain why the market didn’t drop more;

•...take a look at January’s consumer-price index;

•...and worry about the future of consumer spending.

Look Over There!

The stock market stumbled after a sudden spike in reported coronavirus cases due to a change in how the disease is tested. Investors, however, may want to worry about the economic data.

The Dow Jones Industrial Average dropped 128.11 points, or 0.4%, to 29,423.31, while the S&P 500 fell 0.2% to 3373.94, and the Nasdaq Composite dipped 0.1% to 9711.97.

We’re surprised it’s not worse. Many observers have suspected that China’s coronavirus data were underreporting the spread of the disease. The problem is that it allows all of us to let our imaginations run wild, and there’s no telling where that will take us. Already, some are suggesting that the real number of infected people is closed to 150,000, not the 60,364 confirmed cases, according to Johns Hopkins. So why is the market not rattled? “Stocks don’t seem particularly perturbed by the sudden increase in infections counted, likely because reports out of China have suggested numbers were too low,” writes Eric Ross, chief investment strategist at Cascend Securities.

The focus on the coronavirus, however, might be causing investors to overlook the message being sent by the current economic data. For instance, today’s consumer-price index release was pretty much a nonevent for the stock market. It shouldn’t have been. CPI rose 0.1% in January from a month earlier, missing economist forecasts for 0.2%. But core CPI, which excludes food and energy rose 0.24% from December, and 2.3% year-over-year. Worse still, inflation adjusted weekly earnings grew by 0%, notes BMO Capital Markets’ Ian Lyngen. “The implication for household spending power is directionally intuitive, boding poorly for retail sales in the coming months and quarters,” he writes. “A nuance we’d offer is that the current weakness doesn’t necessarily imply a recession is a done deal (we’ve seen real paycheck growth fall toward 0% previously without that occurring), but if the trend prolongs it’s going to be increasingly difficult to sustain the scale of consumption required to support the expansion.”

Coronavirus or not.

Write to Ben Levisohn at Ben.Levisohn@barrons.com

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