During every crisis, there's a sector at the epicenter. Often, this sector starts to show weakness before the broader market and can occasionally start to show signs out outperformance prior to the broader market bottoming. Some examples of this are bank stocks during the 2008 financial crisis, European banks during the European sovereign debt crisis in 2012, and energy stocks in 2016.
Traders and investors should pay close attention to these areas of the market in the coming weeks.
Travel Stocks
This time, the sectors to watch are the travel and casino stocks which will see the biggest impact from the coronavirus and efforts to contain the virus in the coming weeks. Already, companies are temporarily shutting down business travel, and conferences are being canceled. This will obviously have a negative effect on the earnings of airlines and hotels.
Notably, the airlines were showing weakness prior to the broader market. Most of the airline stocks topped in the middle of January. For example, Delta Airlines (NYSE: DAL) topped in January just above $62 and has declined to $45 for a 27% loss which is more than the market's 12% decline. The carnage is even worse in Chinese airline stocks. For example, China Southern Airlines (NYSE: ZNH) dropped 37% over the same period.
Casino Stocks
Another impacted area has been the casinos which are seeing decreased foot traffic and gambling, especially in Macau. Data shows a nearly 90% drop in occupancies and revenue in February. Casino stocks are very vulnerable to any sort of disruption given that they have high fixed costs and need constant foot traffic and big spenders to ensure that they remain profitable. Two casino stocks with big exposure to Macau are Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NYSE: WYNN). Both are down significantly and underperforming the market like the airline stocks.
The ideal scenario is like 2016 for energy stocks. As oil prices fell from over $100 to under $30, there were concerns that it would lead to massive defaults for companies in the sector which could lead to knock-on effects for the broader economy. It eventually led to weakness in the stock market in the early parts of 2016. Stocks fell in January, briefly bounced, and then fell even lower. During this double-dip, the broader market made a lower low, however energy stock made a higher low. This created a low-risk buying opportunity and marked the bottom.