Stocks took a dive Monday as coronavirus continues to spread beyond China’s borders, and Minnesota’s publicly traded companies were not immune.
U.S. stocks had their biggest dropoff in two years when markets closed Monday afternoon, with the Dow Jones tanking by more than 1,000 points. The mass sell-off followed an uptick of coronavirus cases in Italy and South Korea.
In Minnesota, stocks declined across several industries. Minnetonka-based UnitedHealth Group Inc. saw its shares dip by 7.8 percent, hitting its lowest point in nearly a decade, while Polaris Inc.’s shares fell by 5.4 percent. Northern Oil and Gas Inc.’s shares declined by 4.5 percent amid similar drop-offs at other energy companies.
There were a few exceptions, though: Minnetonka-based BBQ Holdings Inc., owner of Famous Dave’s, saw shares rise by 2.9 percent after a bankruptcy court approved its acquisition of Granite City Food & Brewery.
“This is just the market’s panic reaction,” said Karthik Natarajan, assistant professor of supply chain and operations at the U of M’s Carlson School of Management. “The coming few days will tell us whether this is going to be a sustained market reaction.”
If the number of coronavirus cases stabilizes over the coming days, markets could pick back up. “Companies might have some confidence that things are under control,” Natarajan added.
Of course, there are some extenuating circumstances. In the case of UnitedHealth Group, for instance, the decline could also stem from Bernie Sanders’ victory in the Nevada caucuses. The independent Vermont senator has pledged universal health care coverage, or Medicare-for-All, which some say would upend the private health insurance industry.
And, as the largest health insurer in the United States, UnitedHealth Group would foot much of the bill for treatments if coronavirus becomes widespread here.
“There is a general sense of panic that this could become a pandemic,” Natarajan said.
At the same time, the coronavirus spread could impact manufacturers and retailers alike. In a global economy, a manufacturing slowdown in just a handful of countries can be felt around the world.
“If Chinese factory shutdowns and transport issues persist long enough, production in the American manufacturing sector eventually could be adversely affected,” Wells Fargo analysts wrote in a report last week. “Not only is China the world’s second largest economy, but U.S. supply chains are more entwined with China today than in the early 2000s during the SARS outbreak.”
Some companies have made an effort to diversify their supply chains beyond China, which may help them stay afloat during the crisis, said Kyle Goldschmidt, assistant professor of operations and supply chain management at the University of St. Thomas. Others have boosted their own inventories to minimize the impacts of the disruption.
“Companies that hold more inventory are protected in the short term against these disruptions because they have a buffer,” Goldschmidt said. “It depends how long this lasts. Inventory is costly, and companies tend to not want to hold inventory. That leads to uncertainty.”