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Why CarMax Stock Dropped 11.5% Today

By Rich Smith - Mar 9, 2020 at 6:28PM

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Are used cars suddenly out of fashion?

What happened

CarMax (KMX 7.19%) -- like most stocks -- collapsed in Monday trading, falling 11.5% by the closing bell.

Was there a reason for the sell-off? I mean, a reason other than coronavirus?

Empty car parking lot

Image source: Getty Images.

So what

Believe it or not, there doesn't appear to have been any other reason than the coronavirus -- although perhaps that reason is big enough all on its own.

According to the latest data from the World Health Organization, COVID-19 infections now span the globe, with more than half the countries of the world reporting infections within their borders -- and more than half of U.S. states, too.  

That last fact is key, because CarMax does its used-car business exclusively within the United States. Still, to get a full extent of the problem -- and why so many people are panicking about it -- more than 110,000 cases of the novel coronavirus have now been reported worldwide, along with more than 3,800 deaths.

Now what

The stock market is reacting to the scale of this health crisis by selling stocks en masse. The fact that CarMax per se didn't report any particularly bad news of its own today isn't saving it from being thrown out with all the other bathwater.  

Yet if you think about it, even if today's health crisis evolves into tomorrow's economic recession, that might not necessarily be such a bad thing for CarMax. Tough economic times, one imagines, would probably incline car buyers to buy cheaper used cars rather than more expensive new cars. Fact is, what's bad for CarMax stock today might turn out to be slightly less bad for CarMax stock in the months and quarters to come.

Just a final hopeful note for you to muse on, and maybe take some of the sting out of today's losses.

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