Coronavirus Panic: Time To Chill, Breath In And Breath Out … And Consider The Facts.
Time to look backward: an S&P 500/Corona virus retrospective
Even though the coronavirus outbreak in China had been on investor radar screens since the first of 2020, the S&P 500 managed to claw its way to a new all-time high of 3338 January 23. That happened to be the day China cut off egress from Wuhan City. The market took that seriously, dropping 3.5% over the next days. However, by February 19, the market sloughed that off and rallied to a new all-time high of 3394.
The bottom began to fall out February 24, when over the weekend new cases began to pop up all over the world, with more serious outbreaks in Italy and Iran.
I first wrote about the virus and its potential to create problems for the market on January 27 (Markets and the media gird themselves to face a new challenge). At the time the facts on the ground and China looked like this:
Confirmed Chinese cases — over 2744
Confirmed Chinese Deaths — 80
Confirmed cases outside of china — 40
As of March 8, 2020
Confirmed Chinese cases — 80703
Confirmed Chinese deaths — 3098
Confirmed cases outside of China — 27239
Confirmed Deaths outside of China — 566
By contrast, the low-side death estimate for the United States this flu season is 20,000 (average, ordinary, run-of-the-mill influenza). This may turn out to be close to the actual number of deaths as many people may be using unusual caution about exposure during this flu season because of COVID19.
Meanwhile …
Back in China, the actual number of cases seems to have leveled off at about 80,000. Maybe even more instructive to the investor class in the US, the Shanghai Shenzhen CSI300 index seems to have bottomed in early February and is on the verge of breaking out to a new 52-week high.
Panic was the order of the day Friday with the VIX (CBOE Volatility Index) spiking to 54 before collapsing to close at 42. This looked like a key reversal day to me. This swing was massive from a previous close of 39.62, up 15 points to 54.39, down 12 to close at 41.94. This was the highest level attained since the financial crisis (’08/’09).
The U.S. Treasury 10-year note was in high demand (end-of-the-world demand) also, trading up in price and as low in yield as .66%. It closed the week at 77.3 basis points while the S&P 500 dividend yield was 1.97%, a 1.19% spread, which is huge! The spread is at a peak not seen since the height of the 2008/2009 financial crisis. We are no way close to a financial system meltdown.
The Media
The media continues to do its job of providing a clear, calming, unemotional account of the facts … NOT! In a rush for ratings, they continue to fan the flames of panic. You don’t hear much about China coming out of the tunnel (new cases way down, stocks way up) but what you do hear are comments like this from CNN:
Just a week ago on February 29, there was one confirmed death from coronavirus in the United States. Now the rapidly-spreading virus has killed 19 people and affected more than 30 states and the District of Columbia, turning into a health crisis.
What they don’t mention in the paragraph above is the fact that fourteen of the unfortunate victims above all were residents of the same senior care facility in Washington state. As of 11:00AM CDT (3/8) there have been 464 confirmed cases on US soil represent 1.4 cases per million of our population.
Bottom Line: I cannot predict when clearer heads will prevail, but based on the action even in the VIX and ten-year Treasury, it feels like we are getting close. Stay the course.
P.S. for those of you looking for greater detail on the economy and additional thoughts on the VIX and bond market action I recommend the work of Fear and Greed Trader and Califia Beach Pundit.
Disclaimer: The information presented in kortsessions.com represents my own opinions and does not contain recommendations ...
more
Where did you get the low-side death estimate for the US from? CDC?
CDC website. www.cdc.gov/.../...iminary-in-season-estimates.htm
No need to panic. Just don't fly and avoid restaurants if you can. And don't go to big events. The media is better than that congressman from Florida who wore a gas mask making fun of this biblical plague. He is in quarantine right now!
Gary, Don’t forget. WASH YOUR HANDS!
While I do think the coronavirus offers tremendous risks for the US and global economy as a whole, I do think the media has blown it way out of proportion. Supposedly, most of those infected won't even know it - it will just be a cold or mild flu. And apparently, kids are practically immune. The elderly are of course at risk, but are more susceptible to any virus. Like every germ, proper hygiene is the best protection.
JAMES, thank you for the perspective. I concur. Regarding the coronavirus, the media is both a blessing and a curse. On the plus side it’s getting people to take protective action. On the minus side, because bad news sells it is scaring the hell out of people.
In the last pandemic, the Spanish influenza, we did not have the kind of communications available today. I think about a third of the US population caught that influenza and 2%+ died. As it pertains to that particular influenza, as the virus began to wind down in 1919, The Dow Jones industrial average hit a new high of 118.
Thanks for checking in.
bk
Yes, though, the the World Health Organization said the death rate in this case is almost double that at 3.4%. But the truth is, we actually know so little about this new disease, and so few people are being testing, that a lot of these facts are somewhat meaningless. We likely won't know the full picture until we beat the novel coronavirus (assuming we do).
According to the who, the death rate for the flu/influenza is less than 1%, while for Covid-19, it is 3.4%
Yes Danielle that is correct. It is very fatal in the older and infirmed population and almost no threat to children. The only thing I might point out is that we are operating with a small sample that currently only holds about 114,000 people. I believe there have been somewhere in the area of 26 deaths (668 cases) in the United States, 14 of which occurred in the same nursing home.So again in the small US sample the death rate is running about 3.8% because of the outbreak in the nursing home. The 26 may also include additional people from the nursing home. I’m not certain if the media is helpful in breaking this out.
Thank you for your comment.
Bk
I agree.
I think you are greatly underestimating the impact that coronovirus will have in the US. It is only just getting started there, and the lack of testing kits has made the US completely unprepared to contain an outbreak. It a matter of days, the cases have already ballooned to over 500 and will likely get far worse.
Thank you for the comment Ayelet. China had the same problem. At one point, anyone who presented with the symptoms were labeled as having coronavirus in the count. I do agree that we could have significantly greater exposure and much bigger numbers coming. Having said that it will not be the end of the world. And even though we haven’t prepared by manufacturing and distributing tons of testing. We did have a lot of warning that the disease was coming our way and the simple vigilance that has caused should keep the numbers down.
Unfortunately what’s causing the problem is a crisis of confidence in the administration‘s ability to handle this issue and media that is creating a lot of fear in it’s reporting. My sense is that the disease itself will not be The end of the secular bull market. It certainly could precipitate a cyclical bear market, recession. But it’s not gonna be the financial crisis.
Bk
@[Bill Kort](user:42683), you said " At one point, anyone who presented with the symptoms were labeled as having coronavirus in the count."
I'm not sure where you saw this. I read the complete opposite. That China went to great lengths to reduce the official numbers of #coronavirus infections. In fact, originally even when medical tests practically assured someone was infected, unless they had an official test, they could not be included in the count. And China didn't have enough tests.
When the numbers increased dramatically, it wasn't that people were being infected at higher rates, but rather, it was simply a matter of more people being tested. It makes me wonder if the numbers in the US are much higher than we realize.
There was a point in time when the Chinese were having trouble getting tests, just like the United States, to test everyone. To compensate, anybody scanned with pneumonia like images were immediately classified as coronavirus cases and placed in the number. I presume subsequently they were tested.
As to the real number of coronavirus cases in China or anyplace else, the symptoms in many people especially the young are so minor, they won’t be tested. I am assuming if everybody actually had the virus we’re counted, The death rate would be much lower. So far in the United States at least as of last night most of the people who have passed away were residents of the same nursing facility.
I would agree with you that the numbers in the United States and anyplace else the viruses surfaced are probably much higher but the symptoms are much weaker in the young. Anyway, I think it is time to step back and reassess the panic. People in the most at risk group Should not go into crowds, should not take cruises, should not travel abroad. The rest of us should be washing our hands more often and start thinking about resuming normal activities. This is not the Spanish influenza.
Tucker Carlson said Coronavirus is much worse than the flu. I saw where a 32 year old medical worker has it and says it is getting worse. He had no underlying medical condition.
I think the big issue is that we really have no idea how many people have it. It could be far higher - America dropped the ball on manufacturing the testing kits and there's simply not enough to go around.
Thanks for your comment Kevin. I just responded to your concern in my response to Ayelet Wolf above. I would say unlike China, our population is well aware that the disease has come to our shores. Mini are taking significant steps to lessen their chances of getting the disease. Health professionals are very vigilant for new people presenting with symptoms and, in the final analysis, we are dealing with a crisis of confidence in the administration’s ability to Deal with this problem. Then of course you have to look at the OPEC price war and its affect on energy stocks. For as long as it lasts, it will be a significant stimulus because it will put money in the pockets of consumers that have been shipping it elsewhere. Also, they use the rate on the 10 year government to establish mortgage rates. This should help a lot of people refinancing. As Mr. Roosevelt said, the only thing we have to fear is fear itself.”
Thanks for stopping by.
bk
You are correct. I just read a report today that ranked countries by testing kits as a percent of population. The US came in dead last with only 1 testing kit per million people!