Coronavirus Stokes Investors’ Corporate Cash Concerns

U.S. investors are growing wary of the possible effects of the coronavirus, with reports of workers staying home and worries of payments to affected workers causing a stir, according to Yahoo Finance.

If the outbreak continues to keep workers at home, investors said things could get worse.

With U.S. corporate debt at all-time highs and the size of the so-called triple B segment (companies just above junk status) also sitting at that height, sudden shocks to the economy could end up putting companies at a greater risk of downgrade, disrupting cash flow.

Brian Reynolds, chief market strategist at Reynolds Strategy, said the virus is “altering people’s travel plans and work schedules,” and said the economy could see defaults picking up due to a slowing in economic growth, with what has already happened to credit spreads having discounted some modest increase in defaults.

Around the globe, companies have begun initiating profit warnings and curbing activities. There have been over 96,500 people infected worldwide, with deaths numbering above the 3,300 mark as of this week. There have been 11 deaths in the U.S., in Washington state and California, and New York’s governor said Thursday (March 5) that there had been 22 people infected in that state.

Junk bonds have been pricing at higher levels of default, the report states. Spreads over safer Treasuries have widened to 475 basis points from 403 at the start of February, using the ICE/BofA high yield index. February’s widening is the largest the index has seen since December 2018.

Parts of China’s economy, where the virus was first widely reported, have experienced a shutdown, creating issues for U.S.-based companies that use China’s production and consumption chains. However, reduced economic activity could also become an issue for the U.S. as the virus continues its spread.

Despite concerns over the virus, though, the U.S. reported 273,000 jobs created in February, exceeding analysts’ expectations. However, Sequoia Capital said it doesn’t have a positive outlook on where things are going economically due to the virus.