Stocks cut gains Monday after Carnival confirmed one of its guests tested positive for coronavirus six days after leaving the ship.
Around midday, the Dow Jones Industrial Average was up 176 points, or 0.6%. The Dow rose as much as 374 points earlier in the day. The S&P 500 traded 0.7% higher after rising more than 1%. The Nasdaq Composite remained more than 1% higher.
Carnival shares erased earlier gains and traded more than 1% lower on the news. Norwegian Cruise Line followed Carnival lower, trading 0.9% lower.
“The shorter-term uncertainty around the coronavirus is really affecting everything,” said JJ Kinahan, chief market strategist at TD Ameritrade. “You may continue to see sort of reallocation.”
Wall Street started off the session on the right foot, recovering a big chunk of its losses from Friday’s sell-off, which was sparked by coronavirus fears.
Nike led the Dow higher with a 4.3% rise after analysts at UBS and JPMorgan recommended buying the stock on coronavirus-related weakness. JPMorgan called this recent pullback a “multi-year buying opportunity.”
The major averages reached their session highs after the Institute for Supply Management said its manufacturing gauge showed activity in the sector expanded. Economists polled by Dow Jones expected a contraction in manufacturing activity for January. The 30-stock Dow was up more than 350 points at its high of the day.
The death toll in China from the coronavirus reached 361 on Sunday, surpassing that of the SARS virus which lasted from 2002 to 2003, while a first death outside of China was reported in the Philippines.
Worries about how the virus would impact the global economy dented U.S. stocks in their final trading day of January. The Dow dropped 603 points, or more than 2%, on Friday. The S&P 500 pulled back 1.8%, its biggest one-day drop since October.
Travel and airline stocks led the way lower for the broader market last week, with among the hardest hit. Airlines such as Delta, United and American also fell.
Investors also increased their exposure last week to Treasury yields and loaded up on protection in the options market. The 10-year Treasury yield fell on Friday to 1.505%, pushing the note’s price higher. The benchmark rate climbed back to around 1.57% on Monday. The Cboe Volatility index, widely considered the best fear gauge on Wall Street, jumped to above 18 in January from around 13 to start the month.
Stocks in mainland China plummeted overnight in their first session since closing for the Lunar New Year holiday. The Shanghai Composite tanked by 7.7%. The Shenzhen Index fell by 8.4%. Japanese stocks also declined Monday, with the Nikkei 225 pulling back by 1%.
Yet, U.S. investors are seemingly buying the dip after the S&P 500 and Nasdaq recorded their worst start to a trading year since 2016.
“We are looking for higher highs in the S&P 500 Index once the Coronavirus fears subside,” said Marc Chaikin, CEO of Chaikin Analytics, in a note. “Buying opportunities abound in strong sectors and industry groups.”
But Mohamed El-Erian, chief economic advisor at Allianz, advised investors to hold off on adding equity exposure at this point.
“The coronavirus is different. It is big. It’s going to paralyze China. It’s going to cascade into the global economy,” El-Erian told CNBC’s “Squawk Box” on Monday. “We should try and resist our inclination to buy the dip.”
—CNBC’s Elliot Smith contributed to this report.
