THE WALL STREET JOURNAL. Monday, March 9, 2020 |B9
Concerts,
Movies Test
Delayed
Gratification
Questions build about
when demand returnsGigawatthoursCapacity of battery plants
owned by global car makers
or their joint venturesSource: Benchmark Mineral IntelligenceNote: Some of Panasonic’s assets in Japan and China
will this year transfer to a joint venture with Toyota. 5 1 15TeslaPSAGMVW2019
2024 projection
2029 projectionHEARD
ON
THE
STREETFINANCIAL ANALYSIS & COMMENTARY
In the U.S., more event cancellations and postponements seem likely.SERGIO FLORES/REUTERSMany indicators of momen-
tum show that stocks are
oversold, or ripe for a re-
bound. But analysts say the
prospect of a virus-induced
economic slowdown is over-
whelming other market driv-
ers, extending the recent
stretch of turbulence.
“We’re getting a bunch of
mixed signals,” said Nela Rich-
ardson, an investment strate-
gist at Edward Jones. “People
do reassess, ‘What is my risk
tolerance?’”
After wiping out nearly all
of its week-to-date rebound,
the S&P 500 ended Friday 12%
below its all-time high and
back below its 200-day mov-
ing average. It crossed below
it for the first time during the
selloff on Feb. 27.The swings highlight the
uncertain spread of the coro-
navirus around the world and
the evolving response by gov-
ernments and central banks to
cushion the global economy
from the fallout.
The Federal Reserve imple-
mented an emergency inter-
est-rate cut of half a percent-
age point last week, while
Congress reached an agree-
ment on funding a roughly $8
billion response to the out-
break. Some analysts expect
the Fed to lower rates again at
a meeting this month.
With most economic data
reflecting growth before the
virus spread to the U.S., ana-
lysts are bracing for more
global responses to the dis-
ease and updates from compa-nies on how their businesses
are being affected.
Also stoking big moves:
Former Vice President Joe Bi-
den’s recent success on Super
Tuesday, setting up a clash
with Vermont Sen. Bernie
Sanders for the Democratic
nomination in this year’s pres-
idential election.
Mr. Biden’s more moderate
proposals are appealing to an-
alysts who fear Mr. Sanders’s
policies would dent corporate
profits.
The overlap between virus
news and political develop-
ments has pushed some inves-
tors to wait for more stability
before adjusting their expecta-
tions.
“So much technical damage
had been done that we maynot be able to ascertain as
much right now,” said Yousef
Abbasi, global market strate-
gist at INTL FCStone. “People
are searching for a level where
this market feels more com-
fortable.”
Analysts are also monitor-
ing other factors to make
sense of the market selloff.
Those include bets on stocks
by trend followers known as
commodity trading advisers
and the magnitude of hedging
activity by options traders.
Some of those indicators sug-
gest the volatility might con-
tinue, as do big moves in
gauges of momentum.
The S&P 500’s relative
strength index—a popular way
of gauging 14-day momen-
tum—tumbled from 66 the dayEpidemics aren’t a great time to
be in the business of drawing big
crowds into tight spaces.
As the coronavirus continues to
spread globally, conferences, concerts
and movie releases are being delayed
or canceled. Cruise-ship passengers
are now rightfully thinking twice as
the virus hits another vessel.
Wednesday brought the news that
the next James Bond movie called, of
all things, “No Time to Die,” has been
delayed from its planned release in
April to November.
And on Friday, Austin’s South by
Southwest festival was called off.
Also, Mariah Carey delayed a Ho-
nolulu concert to November as well,
becoming one of the first major
musical acts to move a U.S.-based
performance citing coronavirus.
Naturally, shares of companies at
the center of these businesses have
been hit hard. As of Friday’s close,
shares of major movie-house chains
Cinemark Holdings , AMC Enter-
tainment and IMAX Corp. have slid
an average of 25% in just the past
month. Concert promoter Live Na-
tion Entertainment is down 27% in
that time.
Major cruise-ship operators Car-
nival , Royal Caribbean Cruises and
Norwegian Cruise Line Holdings
have fallen an average of 44% in the
last month. The latter two have also
lost more than half their market
value since the first of the year.
Walt Disney Co. is also exposed,
given that it is Hollywood’s largest
producer of blockbuster movies, a
major theme-park operator and, for
good measure, also in the cruise
business. The company so far hasn’t
moved the release of its live-action
version of “Mulan” set for later this
month, but its reception could still
be hobbled by the spreading virus.
And a sharp drop in airline travel
seems highly likely to crimp atten-
dance at its parks. But the enter-
tainment company’s share price has
fared a bit better than others. It
also offers the stay-at-home variety
of entertainment like its cable TV
business and a new, highly popular
streaming service. Still, Disney
shares are off more than 19% in the
past month—notably worse than
the S&P 500’s 11% loss.
As the coronavirus is still early
in taking hold in the U.S., more
event cancellations and delays seem
likely. At some point, companies
and investors in the business of
what might be called “in-person en-
tertainment” will have to grapple
with the longer-term question of
whether demand has simply been
delayed or destroyed.
Certainly a strong case can be
made for the former. People seek
out entertainment even in the worst
of times and big entertainment
brands are highly durable. James
Bond fans have been flocking to
those movies for the last five de-
cades. In concerts, the Rolling
Stones can still command average
ticket prices above $300 even with
some band members pushing 80.
And cruise ship fans aren’t exactly
strangers to biological frights. Car-
nival still managed to increase reve-
nue in the fiscal year immediately
following its infamous 2013 “poop
cruise.”
Executives and analysts are sofar banking on the effects being
temporary. At a Morgan Stanley
conference, Live Nation President
Joe Berchtold said the company
isn’t seeing “an existential change
in fan behavior,” noting that its
Bonnaroo festival just sold out
“faster than it ever has.”
That event, which drew 80,000
attendees last year, is set for mid-
June in Tennessee. As far as movies
go, Wedbush analyst Matthew
Breda doesn’t see the shift of the
new Bond film by itself hurting
overall box-office prospects for
2020.
The big risk, of course, is that no
one knows when or how the current
outbreak will ebb. What seems an
ending could even be a false flag.
The Spanish Flu of 1918 famously
came roaring back in the fall after
appearing to subside in the spring.
Once it does subside, it is unclear
how long it will take consumers to
bounce back to normal spending
habits. Chinese consumers have
been hit hard by factory and busi-
ness shutdowns there. The same in
the U.S. would put a strong dent in
the kind of disposable income in-
tended for entertaining diversions.
One possibility is that the reali-
ties of a new, interconnected
world—where an outbreak in cen-
tral China can hit California and
New York within weeks—could
make more people think twice
about crowding in for a good time.
For a gathering of 80,000 music
fans, there may not be enough
Purell in the world.
—Dan GallagherCar Makers Follow
Tesla’s Battery Lead
General Motors is going “all in
on batteries,” the company said this
week, and so are other big car mak-
ers. Investors likely won’t see re-
wards for years.
In recent months, one after an-
other of the world’s top auto mak-
ers has followed Tesla down the
route of big battery investments, a
key link in the electric-vehicle sup-
ply chain. And just as Elon Musk
teamed up with Panasonic for his
so-called gigafactory in Nevada,
old-school manufacturers are lean-
ing on specialist partners.
Last September, Volkswagen
launched a joint venture with
Northvolt, a Swedish startup cre-
ated by two former Tesla employ-
ees, to build a battery plant in Ger-
many. In December, GM said it
would construct a $2.3 billion plant
in Ohio alongside Korean battery gi-
ant LG Chem. In January, PSA —the
French company due to merge with
Fiat Chrysler —unveiled a collabo-
ration with SAFT, a European bat-
tery specialist now owned by oil gi-
ant Total , to spend $5.5 billion over
the next decade on cell production
in France and Germany.
And in February, Toyota said it
would form a joint venture with Pa-
nasonic that would involve taking
control of some of its battery plants
in Japan and China.
In Volkswagen’s case, it was
tempting to attribute the plan to
politics. The company is part-owned
by the State of Lower Saxony and
has a long record of overinvesting
there. As the company sells more
electric cars, it will need something
to replace engine manufacturing.
Politics played their part at GM
and PSA, too. GM specifically
pitched the potential battery plan
as an offset to other plant closures
in labor negotiations last fall, while
the PSA-Total plan will get about
$1.5 billion in European Union sub-
sidies.
Yet GM Chief Executive Mary
Barra and Carlos Tavares, her peer
at PSA, are arguably the industrybosses most focused on profitability
and capital allocation. In a slick in-
vestor presentation on Wednesday,
Ms. Barra made the case why in-
vesting in batteries made financial
sense: More control over the supply
chain would give GM leverage to
push battery costs down to a level
that would make electric vehicles
both attractive to consumers and
profitable. Mr. Tavares made a simi-
lar pitch last month.
Such plans could eventually yield
a competitive advantage, but they
also ask investors to take a lot on
faith. Battery production doesn’t
yet have a strong profitability re-
cord, even among the most estab-
lished East Asian players. Yet auto
makers that want to be sure of hav-
ing automotive-grade batteries may
have little choice but to make them:
Top-quality products are in short
supply.
As Tesla’s market value has rock-
eted, the question of whether con-
sumers are ready to buy electric
cars has given way to whether man-
ufacturers are ready to make them.
More industry leaders are conclud-
ing that the only way is to embrace
a form of vertical integration that
has been out of fashion for decades.
—Stephen WilmotMARKETS
the index peaked to 19 on Feb.
28, before recovering some-
what last week.
Similarly, the number of
stocks trading above their in-
dividual 200-day moving aver-
ages has plunged, as has the
number hitting their highest
levelinayear.
While such reversals can of-
ten indicate that markets are
ripe for a rebound, analysts
say the speed of the changes
has made it challenging to an-
alyze.
“It’s scary when it happens
so quickly,” said John Kolovos,
chief technical strategist at
Macro Risk Advisors, adding
that he has received an in-
crease in client queries re-
cently.
The dramatic moves have
transcended asset classes,
pushing the yield on the
benchmark 10-year U.S. Trea-
sury note below 0.75% for the
first time ever, with money
managers seeking more stable
investments. Bond yields fall
as prices rise.
The 10-year yield is on its
longest losing streak ever af-
ter 12 consecutive declines, ac-
cording to FactSet data going
back to 1962.
In commodity markets, oil
prices have been mired in a
bear market. They fell Friday
to $41.28 a barrel, their lowest
level in 3½ years and are 35%
below a peak hit two months
ago. As is the case with stocks,
some investors expect those
extreme moves to moderate
going forward.
Megan Horneman, director
of portfolio strategy at Mary-
land-based Verdence Capital
Advisors, said the S&P’s slide
below its 200-day moving av-
erage was one of several fac-
tors recently indicating a pos-
sible long-term buying
opportunity. The firm in-
creased its positions in large-
cap U.S. stocks recently but is
still prepared for outsize
swings to continue on a
shorter time horizon.
“When you have moves of
this magnitude, the volatility
does not just tend to stop,”
Ms. Horneman said.Stocks are bouncing around
a closely watched trend line,
one of many conflicting sig-
nals vexing investors trying to
gauge where major indexes
might go next after several
days of unruly trading.
After falling below several
key levels last week, the S&P
500 in recent days has jumped
above and below its 200-day
moving average, a long-term
line analysts use to trace an
index’s performance. Indexes
falling below such lines or
other levels can prompt selling
by algorithms and other inves-
tors, while staying above them
or eclipsing them after dips
can spur further buying.
But sudden changes in mo-
mentum recently are distort-
ing traditional relationships,
causing anxiety that a pro-
tracted downturn looms. The
S&P closed up or down at
least 2.5% in four consecutive
sessions through Thursday,
the longest such streak since
August 2011, according to Dow
Jones Market Data. It then
closed down 1.7% Friday after
earlier falling as much as 4%
during another wild session.
The speed at which the S&P
dropped below its 50-, 100-
and 200-day moving averages
during the recent rout—just
days after closing at a record
Feb. 19—accelerated the sell-
off, traders say.
Stocks posted their worst
week since the financial crisis
Feb. 28, with the broad equity
gauge posting its fastest-ever
correction—a drop of 10%—
from a record.
Since then, the S&P has
whipsawed above and below
its 200-day moving average
without a clear direction, a
sign to some analysts that typ-
ical relationships are less
likely to hold after days of
outsize intraday swings and
headline-induced buying and
selling.
The dizzying moves around
the trend line last week show
the extent to which the fallout
from the coronavirus has af-
fected markets.
BYAMRITHRAMKUMAR
Mixed Technical Signals Feed Stock Volatility
S&P 500
5 0-day
moving
average1 00-day
moving
average200-day
moving
averageS&P 500, daily closes and moving averages
Sources: Dow Jones Market Data; FactSetPercentage of S&P 500 stocks
trading above their 200-day
moving average
800204060%2019 ’20Number of S&P 500 stocks
hitting 52-week highs
1250255075100Jan. Feb. MarchS&P 500 Relative
Strength Index
8002040602019 ’20335029503000305031003150320032503300Jan. Feb. March