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Market Strategy 1/27/2020

  • John Stoltzfus
  • January 27, 2020

There’s Always Trouble and You Can Bank On That

The widely reported spread of the coronavirus reminds us to keep things in context of previous viral outbreaks in recent history
Key Takeaways
  • A near term move in global markets to “risk off” should be considered in context of earlier deadly viral outbreaks in the 21st Century.
  • Last week saw some selling without “FOMO” by short term and nervous investors.
  • Earnings results for Q4 earnings season shows 72% of those reported beating earnings expectations.
  • Last week’s U.S. economic data supports the case for sustainable modest economic growth.

As we prepared to go to press with this week’s edition of the Market Strategy Radar Screen news crossed the transom that the government of China will extend the current New Year Holiday for an unspecified period of time to help reduce the spread of the coronavirus. China health officials worry that without placing travel restrictions the illness could spread as the Lunar holiday is known to generate some three billion trips a year as citizens of the country travel to visit friends and family.

Last week when we went to press with the weekly MSRS there had been two deaths reported. This week the number of deaths reported has reached at least 56 people in China according to Bloomberg News. As of Sunday the number of reported cases inside China had grown to 2,051.

Mainland China is reported to account for 98% of confirmed infections globally. More than a dozen cases have also been reported in a number of countries including four cases in the U.S. centered on individuals who were reported to have recently traveled to the U.S. from the area in China to which the virus has been traced.

The good news in all of this is that China’s government and the health authorities of the world are responding quickly to the situation and health care organizations are searching out drugs to respond to the needs of those infected as well as looking for ways to stem the future spread of the virus. The world’s health care authorities have significant and recent historical experience in dealing with virus contagion in a world intertwined by trade and leisure travel.

Quotation from Aenean Pretium

While the outcome of the new virus outbreak is yet unknown recent history strongly suggests that it will be effectively dealt with if not without tragic individual deaths and economic and market risk near term

While world markets have naturally begun to reflect concern as to what impact the current outbreak might have on China’s and the global economy, it’s important to acknowledge that global health organizations are no pikers when it comes to dealing with outbreaks of deadly and disruptive viruses. We recall the outbreaks of SARS, Ebola and Zika, which erupted in the first decade of the twenty-first century and the risk of a global pandemic that came with each of those epidemics which were contained and dealt with by global health care authorities in conjunction with the global health care sector. In hindsight the positive outcomes for the world’s population, economy and markets in those instances occurred in remarkably quick fashion relative to the deadly nature and momentum of each outbreak.

While the outcome of the new virus outbreak is yet unknown recent history strongly suggests that it will be effectively dealt with if not without tragic individual deaths and economic and market risk near term.

From an investment perspective world market moves near term towards a more risk adverse or “risk off” stance should come as no surprise as short term traders find an opportunity to take some profits off the proverbial “table” without “FOMO” (fear of missing out) as markets which had recently rallied pause, shed some recent gains, rotate and rebalance. For intermediate and longer term investors the markets’ near term repositioning and any volatility that comes with it should be in our view considered as a near term health concern rather than a serious intermediate or longer term issue for the markets.

The drop in yield last week on the U.S. Treasury note from 1.82% at the start of the week through the note’s closing yield of 1.69% last Friday stateside likely reflects a mix of concerns about the near term modest pace of global growth while the potential positive effects of the “phase one” trade agreement between the U.S. and China are sorted out along with market concerns tied to the outbreak of the coronavirus.

John Stoltzfus of Oppenheimer Asset Managment Inc.

John Stoltzfus


Chief Investment Strategist, Oppenheimer Asset Management Inc.

John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.

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