Coronavirus And The Markets

I’m a skeptic when it comes to those large multinational organizations that take in a ton of U.S. funding, but most fall short of their mission. An exception to this is the World Health Organization (WHO), which has been very effective during the most trying times for mankind. And they are dealing with another major challenge: fighting the coronavirus.

Last week, the organization failed to call the outbreak a global emergency, but instead flew to China to get a better read from ground zero. Yesterday, the anticipation ramped up as the number of confirmed cases piled up, and the public’s uncertainty grew with the aid of media sounding like Orson Welles describing a Martian invasion.

Even before the (WHO) announcement, the stock market was grappling with an announcement from the Centers for Disease Control and Prevention (CDC) of six U.S. confirmed cases. The sixth case is the first human-to-human contact transmission. The knee-jerk reaction took the Dow down 100 points (which is a very small percentage move these days) to a loss of 220 points, but it should have been off even more.

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It was learned the sixth confirmed case is the spouse of one of the original five confirmed cases, which gave the market some relief.  Still, the chatter was hot and heavy as doom and gloom filled the air, yet the market was holding up very well. I get the stock market is all-knowing, but how could the market know the (WHO) would label the virus a global health emergency, and that the market would rally into the close?

It’s only the sixth time this designation has occurred:

It was the press conference, not the designation the market reacted to; for good reason, it was smart and measured (I ran it ‘live’ in ‘Making Money with Charles Payne’ on Fox Business). Dr. Tedros Adhanom Ghebreyesus, Director-General of the (WHO) talked up and complimented China, which probably put President Xi at ease when it was clear China opposed this designation.

The director-general went on to explain that this had nothing to do with China and the threat there, but it was about the threat to smaller less-equipped nations.

Key Quotes:

"As I have said repeatedly since my return from Beijing, the China government is to be congratulated for the extraordinary measures it has taken to contain the 2019nCoV outbreak, despite the severe social & economic impact those measures are having on the Chinese people"

"We would have seen many more cases outside China by now – and probably deaths – if it were not for the government’s efforts, and the progress they have made to protect their own people and the people of the world"

"The speed with which China detected the outbreak, isolated the virus, sequenced the genome and shared it with WHO and the world are very impressive. So is China’s commitment to transparency and to supporting other countries"

“There are now 98 2019nCoV cases in 18 countries outside China, including 8 cases of human-to-human transmission in four countries: Germany, Japan, Viet Nam and the United States of America”

"The main reason for this declaration is not because of what is happening in China...Our greatest concern is the potential for the virus to spread to countries with weaker health systems and which are ill-prepared to deal with it.”

The World Health Organization was able to label coronavirus a global health emergency, but it also elicited calmness because of China’s extraordinary efforts. Of course, there will be more cases and more reasons to panic, or let our imagination run wild with worst-case scenarios. I continue to say the worst thing that could happen is an American dying from the virus, and the second-worst scenario is a human-to-human contact transmission of people that don’t share a bed. 

After the Close

My goodness, there was a whole new session after the close choked with everything:

• Blowout financial results from Amazon (AMZN) (told you they were due, LOL) sent shares to a record high.
• A new CEO at International Business Machines (IBM), sending those shares higher into orbit.
• A major takeover offer for Navistar International (NAV) from Volkswagen AG.

It’s going to be another fun session.

Portfolio Approach

Yesterday we closed 3 positions and this morning 2 more.  If you have any questions, contact your account representative or email research@wstreet.com.

Today’s Session

The markets are all in the red this morning.  AMZN is rocketing higher, up 8.5% after its blowout earnings.

On the economic front, Personal income increased 0.2% to $40.7 billion in December according to the Bureau of Economic Analysis, led by increases in employee compensation and personal interest income.  Disposable personal income (DPI) also increased 0.2% to $30.6 billion and personal consumption expenditures (PCE) increased 0.3%  $46.6 billion. The increase in personal spending was fueled by a 0.3% increase in both spending on goods and services. Durable good spending, however, was down 0.8%.

• Real DPI decreased 0.1%
• Real PCE increased 0.1%
• PCE price index increased 0.3%
• Excluding food and energy, the PCE price index increased 0.2%
• Year over year, real PCE increased 3.3%, versus 2.4% in November, while real disposable personal income rose 2.0%, versus 3.0% in November
• Personal savings rate, as a percentage of disposable income, declined to 7.6% from 7.8% in November

Inflation remains below the Fed’s 2% target, which will continue to keep interest rates low.  Speaking of which the 10 year is 1.546%.