Monday May 4th

4-05-2020

Dow futures fall more than 200 points to start the week, airline stocks drop on Buffett sale

U.S. stock index futures fell Monday morning as traders weighed the reopening of the economy along with brewing tensions between China and the U.S. Dow Jones Industrial Average futures fell 235 points, or 0.9%, pointing to an opening decline of more than 230 points. S&P 500 futures lost 0.6%. Nasdaq-100 futures fell 0.4%. Warren Buffett said his Berkshire Hathaway sold all of its airline holdings because of the coronavirus outbreak. While the legendary investor was optimistic over the long term about the outlook for America, the move shows his concern that the pandemic has changed certain industries permanently and could be a sign that other investors are too optimistic about the economy returning to normal quickly. Airline shares were the biggest losers in the S&P 500 in the premarket. Delta, United Airlines, American Airlines and Southwest Airlines all lost more than 9%, while plane maker Boeing dropped 4%. “Mr. Buffett is a long-term investor, so his decision to sell reflects his belief that airline industry is facing future challenges that fundamentally change the value-capture of that business,” wrote Tom Lee of Fundstrat in a note to clients. Investors are also grappling with worries over another spat between China and the U.S. On Sunday, Secretary of State Mike Pompeo said there was a “significant amount of evidence” connecting the coronavirus to a lab in the Wuhan region of China. Those comments came after National Economic Council Director Larry Kudlow said Friday that China will be “held accountable” for the coronavirus. Earlier in the week, President Donald Trump said he was considering imposing tariffs on China for its handling of the outbreak. States across the U.S. are letting nonessential businesses reopen and are easing stay-at-home orders in an effort to restart the economy after the coronavirus forced a near-global halt in economic activity. However, this easing comes as data from the World Health Organization showed the U.S. had its deadliest 24 hours of the outbreak between Thursday and Friday. “We expect stocks to remain volatile as markets struggle to find a balance between announcements on the lifting of lockdowns, data on potential treatments and vaccines, economic releases, news on the course of the pandemic, and changing political dynamics,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note on Monday. Increasing hopes of a possible treatment from Gilead Sciences also lifted sentiment last month. On Sunday, CEO Daniel O’Day said remdesivir — Gilead’s promising antiviral drug — will be available to coronavirus patients this week. Gilead shares added 2% in premarket trading. Stocks notched their best monthly performance in over 30 years in April in part because of hopes of an economic reopening. Last month, the S&P 500 rallied 12.7%. More than 3.5 million cases of Covid-19 have been confirmed globally, including over 1.1. million in the U.S. alone, according to data from Johns Hopkins University. Stocks in Asia fell on Monday, as reigniting tensions between the U.S. and China weighed on investor sentiment, with major regional markets closed for holidays. Hong Kong’s Hang Seng index dropped 4.18% to close at 23,613.80. Meanwhile, South Korea’s Kospi fell 2.68% to close at 1,895.37. Markets in China, Japan and Thailand were closed on Monday for holidays. Oil prices fell on Monday on worries that a global oil glut may persist even as coronavirus pandemic lockdowns start to ease, amid a fresh spat between the United States and China over the origin of the virus. West Texas Intermediate crude fell $1.08, or 5.5%, to $18.70, and Brent crude was down 67 cents, or 2.3%, at $25.82. Gold prices rose on Monday as U.S. President Donald Trump’s threat to impose tariffs on China over the coronavirus crisis overshadowed optimism about economies easing lockdown measures, driving investors away from riskier assets. Spot gold was up 0.3% at $1,703.95 per ounce. U.S. gold futures rose 0.8% to $1,714.30.