Coronavirus Ails S&P 500 Index, MedTechs Bear The Brunt

The novel coronavirus catastrophe continues to take a massive toll on the stock market. Yesterday was the worst day for the market since the 2008 financial crisis, so much so that it was termed as ‘Black Monday’. Among the major indices, Dow Jones tanked more than 2000 points while the NASDAQ Composite Index shed 625 points. The S&P 500 Index closed 226 points lower, marking a 7.6% decline in a single day. Taking into consideration the huge daily trading volume of stocks on this coveted index, this massive fall is really appalling.

While an unexpected oil price cut in Saudi Arabia over the weekend contributed to this decline, the 2019-nCoV or COVID 19 continues to send jitters across share markets. Per the last reported figure, the death toll reached 4027. Over the last weekend, daily death growth factor exceeded 1, a clear sign that the number of deaths will increase.

Investors are quite apprehensive about the current market scenario, making the overall situation more critical. Following last week’s emergency rate cut by Fed, the World Bank and IMF’s declaration of a respective $12 billion and $50 billion of support to control the economic fallout of all COVID-19-affected countries, market watchers are linking the latest rate cut as a clear indicator of another economic recession impending.

Going by a MarketWatch report, according to Paul O’Connor of Janus Henderson Investors, “The coronavirus presents investors with an unprecedented global problem. Investors are uncertain about the nature of the virus, its potential economic impact and the policy response. The oil shock has only added to this confusion and uncertainty.”

MedTech Stocks Contribute to S&P 500’s Poor Show

The S&P 500 U.S. medical device stocks that have performed poorly over the past two weeks are driving the index further down with the COVID-19 situation taking a turn for the worse.

Medtronic (NYSE:MDT) has registered a 17% decline in share price over the past two weeks, following 7.9% drop of the index as a whole. This Monday alone, this Zacks Rank #2 (Buy) declined nearly 7%. Meanwhile, on its last earnings call (on Feb 18), this MedTech stalwart noted that its multiple manufacturing and research facilities across China contributed nearly 7% of its total revenues. The company apprehends that operational hazards and supply chain disruption due to the outbreak in this region may slow down the company’s medical device procedure rates, resulting in delays.

With COVID-19 spreading across 90 countries worldwide and with Medtronic having its manufacturing units at several places in Europe and Asia Pacific, we expect the company to face more severe losses over the next few months. In this regard, as per bizjournals article, former Medtronic CEO Bill George said to CNBC "I think businesses are only now beginning to feel the effect, and I think you're going to see severe effects in the months of March and April from people's fears."

Boston Scientific Corporation (NYSE:BSX) : This stock plummeted 17% over the past two weeks with yesterday’s decline being more than 9% unaided. Meanwhile, during its fourth-quarter 2019 earnings call (on Feb 5), this Zacks Rank #3 (Hold) company projected a preliminary $10 million to $40 million potential headwind to first-quarter 2020 revenues as a result of deferred procedures and supply chain disruptions. Boston Scientific anticipates a reduction in volume for all non-emergency medical device procedures as its China business is bound to have been affected in February as well as March by the outbreak.

For this company too, with its manufacturing centers spread across the globe and a huge emerging market footprint, the current scenario indicates a severe blow to the business.

Shares of Abbott Laboratories (NYSE:ABT) have lost 9% over the past two weeks with the stock declining nearly 6% yesterday. Much of this Zacks Rank #3 company’s manufacturing in China is focused on nutritional products. China is a significant market for Abbott’s infant formula business, said Debbie Wang, a senior equity analyst at Morningstar. She said Abbott’s overall sales in the first quarter could be soft as a result of the virus. It’s also possible that Abbott, which sells generic drugs outside the United States, could, like other companies selling pharmaceuticals, have a tough time making these drugs as a number of active ingredients for medications come from China, Wang said.

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