What’s Going On Here?There are some things Mastercard can’t buy, and protection from the coronavirus seems to be one of them: the US company issued a profit warning late on Monday. What Does This Mean?The list of big businesses warning investors about the impact of the virus on their operations is growing by the day, and Mastercard is the latest name to be added. The credit card firm has had to cut its sales growth forecast as the spread of the virus continues to put globetrotters off their travels. Air carriers can certainly relate: United Airlines just scrapped its 2020 profit forecast altogether.
But it’s not just travel-dependent sectors that are feeling sore. With China – the world’s manufacturing plant – having seen lots of its factories close in response to the epidemic, the virus has become a crippling malady for any company that relies on a global supply chain. Take Procter & Gamble, for example: even the maker of everyday essentials is expecting the virus to hit its first-quarter earnings hard. Why Should I Care?The bigger picture: US stocks are teetering.
At last count, 20% of the 500 biggest US companies had warned investors about the damage the virus was doing – and that number’s likely climbing as we speak. That trend doesn’t bode well for US stocks: their price-to-earnings ratio – that is, their market value relative to their forecasted earnings – is still pretty high. Some investors might then start to see the stock market as too expensive, and dump their shares as a result.
Zooming out: Hold on to your monocle.
Luxury firms are a good case study of just how much chaos the epidemic is causing. According to a survey of 28 top executives earlier in the week, the outbreak is expected to cost the industry as much as $43 billion in lost sales, most of which is down to the flagging Chinese market (tweet this). Well I never! | 