As the coronavirus outbreak spreads, the world's largest companies have begun to paint a bleak picture of broken supply chains, interrupted manufacturing, empty stores and demand for their products.
The ads of companies such as Mastercard, Microsoft, Apple and United Airlines offer a reading on how the virus is affecting consumer behavior and business sentiment. These corporate newsletters, and what executives do in response, could determine how much economic damage the outbreak causes and whether a recession is coming.
Some companies have expressed optimism that governments will curb new infections and that consumer spending in Europe and North America will be largely unharmed. But if executives see a threat beyond the first three months of the year, they can reduce planned investments and even start firing workers. That, in turn, would further reduce economic activity.
The stock market crash this week, the strongest since the financial crisis, suggests that investors prepare for much more bad news.
"Everything is slowing down even more, and that has not been fully appreciated," said Michael O'Rourke, chief market strategist at JonesTrading.
the The correction in the S,amp;P 500 stock index, a decrease of 10 percent or more from a recent peak, was the fastest. Amid the mass sale, Goldman Sachs analysts said they hoped that the companies that make up the S,amp;P 500 collectively would not show profit growth this year. The bank had previously forecast a 6 percent increase in earnings.
An important vulnerability for companies in the United States and Europe is their growing dependence on China as a supplier and customer in the last 10 or 20 years.
Since the Lunar New Year holiday in China a month ago, many workers have been confined to their homes, disrupting factories that assemble electronic products or manufacture auto parts. Microsoft He said this week that the virus had hindered the production of its laptops and tablets, and reduced its sales forecast for the division that manufactures those products, eliminating a projection it had issued only a few weeks earlier.
Supply chain problems have also begun to affect American homebuilders. A senior Toll Brothers executive said the virus It seemed to have delayed the supply of lighting parts.
At the same time, Chinese consumers are buying less. Apple said closing stores in China would depress sales of iPhones and other devices.
Mastercard reduced its growth forecast partly because people are making fewer international trips. The fear of the virus has led companies such as Amazon and Nestlé to suspend the international travel of some employees. That drop in demand, combined with their own concerns about the virus, has led United and other airlines in the United States and Europe to cancel flights to cities in China and other parts of Asia.
On Friday, United said an information session for investors scheduled for next week would be postponed until September. Citing concern about the virus, the airline said it "does not think it is practical to expect it to have a productive conversation focused on its long-term strategy."
Companies may also have difficulties because investors are increasingly reluctant to lend them money. The appetite for new bonds, especially those issued by less solvent businesses, has diminished. Banks may also have to tighten loan standards. In a sign that investors believe that coronavirus concerns could affect banks, the actions of the three largest US banks. The US, JPMorgan Chase, Citigroup and Bank of America, have fallen much more than the S,amp;P 500 so far this year.
Of course, the coronavirus outbreak could end up resembling other brief shocks that have only caused blows in companies and the stock market. These include the fiscal battles of the previous decade that consumed Washington and Wall Street for weeks in a row.
And as recently as Friday, some companies predicted that their sales would remain well. Volkswagen, the German car giant, He said he expected deliveries this year to be "in line,quot; with 2019. And Apple said conditions were gradually returning to normal in China. "It seems to me that China is controlling the coronavirus," Tim Cook, chief executive officer of Apple, told Fox Business on Thursday. "When you look at the parts that are made in China, we have reopened the factories."
Some Wall Street analysts have expressed optimism that the Federal Reserve and other central banks will reduce interest rates to help offset the economic stress caused by the virus. Such cuts would help reduce loan costs, giving consumers a new incentive to spend and businesses to invest.
Those hopes were raised when Fed president Jerome H. Powell unexpectedly issued a statement Friday saying that the central bank "would act appropriately to support the economy." Bank of America economists wrote on Friday that they expected the Fed to reduce rates by half a percentage point at its March meeting "as a way to stop panic."
Some companies are already talking about how much business will open when the outbreak begins to recede, including Las Vegas Sands, which has great interests in Macau's Chinese gambling paradise.
"When it is resolved, Macao will be very, very busy," Robert G. Goldstein, the company's chief operating officer, said in a earnings call last month.
Some analysts seem to have a warmer spring weather to stop the spread of the virus. "Fear will diminish as the weather warms, hopefully," said Barry Bannister, head of capital strategy at Stifel.
However, for now, investors seem to expect things to get worse. After finishing 0.8 percent on Friday, the S,amp;P 500 lost about 11.5 percent of its value this week, its worst performance in a week since the financial crisis of 2008.
Some investors stay out of the way when they feel poorly equipped to assess financial risks.
A major concern is that the virus will spread rapidly in Europe and the United States, which will force consumers to stay home from work, not to mention avoiding stores, restaurants or other businesses.
In that case, an economic contraction could become inevitable. If a recession develops, Goldman analysts said, S,amp;P 500 companies' profits are likely to fall 13 percent this year. Such a decrease could force companies to lay off employees and postpone new investments.
Even before the outbreak of coronavirus, business investment was already pale in the United States. It fell in the last three quarters of 2019. Some analysts now hope that more companies can soon announce reductions in their capital expenditures. "I think they will see it when they report their Q1 numbers," said Mr. O'Rourke of JonesTrading.
Niraj Chokshi contributed reports.