Market Briefing for Monday, February 24

Phenomenal cash flows - into stocks contribute to what has become, not just an affirmation of our 'don't fight the Fed' and 'don't fight the tape', call for the market to generally maintain traction during this year's early phase of course, but also created a 'Pavlovian' buy-the-dips mentality, that still persists, and will resume after certain shakeouts with timing dependent to a degree not on trotting-out Larry Kudlow to tell us the virus is just a blip (he's wrong, though wish he was right), but actual events.  

Complacency among investors is something we warned about, but when you get it from officials, it tends to obscure changes (like supply-chains) which might just prove to not be reversible. Neither Kudlow nor China for now know the extent of the supply-chain shifts, much less the virus itself. But we do now know that most manufacturers were already shifting sources as well as increasing that trend when the WuFlu virus struck.  

Stock markets of course are discounting mechanisms, but insufficiently at this point discount impacts, with even the travel industry not hit as hard as conceivable, if this becomes a full-blown pandemic (fingers crossed that may be avoided), so we wouldn't make travel plans or place market bets on it yet. People in China are living on their savings already, focuses shift from luxury goods spending to basic essentials and healthcare, and that is something little seen in the USA as of now, but conceivable. 

So is the market at a 'tipping-point'? On a short-term basis, headlines are the risk, as well as 'actual' spread of the diseases. But aside that we should see vulnerability for the S&P because cash shouldn't be allocated now if one hasn't already participated (with exception of special situations because I'm referring more broadly to the tech-FANG-driven S&P or NDX of course), although several should do just fine in the much longer-run 'if' China gets a handle on the virus, which for now is in a 'mitigation' stage.  

Oddly some healthcare and even energy as well as domestic telco's also provide a combination of safe-haven status, as well as their relative lack of participation in the frenzies that preceded the over-3300 extension of the S&P.  If the rest of the world doesn't have to emulate China and now it seems South Korea by going to 'mitigation' stages; that would really help things a lot. Mitigation, which I discussed last night, means containment essentially failed, and they are trying to mitigate the toll of casualties.  

Defeating the Flu Bomb

Earlier this month, we shared researchers publishing of WuFlu's genome, which included the strands of HIV. That's why it mostly vanished in media, at the same time note that at least 3 HIV antiviral drugs (one from Gilead Sciences (GILD) I noted before) are now being used in Clinical Trials in China.

Using that genome, the University of Texas, Austin team, in collaboration with the National Institutes of Health (NIH), identified specific genes that code for a spike protein you see in the graphic. They injected the genes into mammalian cells in a lab dish; producing the spike proteins.

Next, using a detailed (cryogenic electron microscopy) technique a 3D map was created. The blueprint revealed the molecule's structure, and that's impressive speed. A professor of epidemiology at the University of Michigan (not part of a study) says it's a very important step forward and may help in the development of a vaccine.  

The Texas team is sending the atomic 'coordinates' to research groups around the world, which was my point about 'not' suppressing details of the vulnerabilities in the original genomic structure that got suppressed a bit. It was necessary to understand the way antibodies bind, thus giving a better chance of creating weakened antigens; hence making a vaccine. 

So, what I learned today is that NIH colleagues will now inject these spike proteins into animals to see if they trigger antibody production. Still, worry prevails since getting a vaccine (barring miracle response of just using the protein as depicted and injecting it) is likely about 18 to 24 months off. It that's the case, there won't be one in time for next Winter's flu shot.  

Meanwhile..despite warnings there are only 13 cases of WuFlu in the United States so far, when you 'cull-out' the cases related to evacuees. It is good news, considering how many were close to potential exposure (I am thinking for-instance of the Delta flight from Tokyo to Honolulu with 2 infected passengers it turned-out, and we're nearly at 14 days since). At the same time, what about 7000 passengers on 'voluntary isolation'? 

Of course fingers are crossed WuFlu doesn't expand here, but that won't be sufficient to change the financial implications for many companies and for that matter might even increase the reticence to travel abroad or take a cruise, simply because we feel 'sort of' safe. And by no means is CDC or yours truly suggesting we take anything for-granted here in the U.S.