E Mr. Market Catches A Scary Virus

Dominating current headlines is the scary spread of COVID-19, the coronavirus which originated in Wuhan, China. As the tragic death count rises and the number of infected people around the world grows, the impact on global economic growth becomes more uncertain. Fearful of a global recession, Mr. Market recently responded to the virus with a feverish 4,000+ point selloff on the Dow Jones Industrial index. Supply chain disruptions, reduced travel and lower consumer demand will impact financial results, especially for companies doing substantial business in China. 

As a result of a slower return to normal conditions in China because of the virus, Apple (APPL) lowered their growth outlook due to two main factors. The first is that worldwide iPhone supply will be temporarily constrained. While iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than anticipated. These iPhone supply shortages will temporarily affect revenues worldwide. The second is that demand for Apple products within China has been affected. All Apple stores in China and many partner stores had been closed. Apple is gradually reopening retail stores, but they are operating at reduced hours and with very low customer traffic. Microsoft (MSFTalso expects lower revenues in their personal computing division due to supply chain disruptions. 

Nike (NKEhas temporarily closed about half of its stores in China due to the coronavirus. In addition, they are operating with reduced hours and experiencing lower than planned retail traffic. In the short term, Nike expects the situation to have a material impact on their operations in Greater China. 

Starbucks (SBUXhas also closed half of its stores in China. Given the dynamic nature of the circumstances, the duration of the business disruption and reduced customer traffic, the related financial impact cannot be reasonably estimated, although the impact will likely be material to international results. 

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