How The Coronavirus Outbreak Could Impact Markets

Video length 00:05:43

On the latest edition of Market Week in Review, Senior Investment Strategist Paul Eitelman and Research Analyst Puneet Thiara discussed potential market impacts of the coronavirus outbreak. They also reviewed the latest numbers from the fourth-quarter earnings season as well as newly released global purchasing managers’ (PMI) indices.

Market jitters rise as coronavirus spreads

The outbreak of the coronavirus in China commanded the attention of financial markets the week of Jan. 20, Eitelman said, leading to an increase in market volatility. While the outbreak has the potential to significantly disrupt the global business cycle, such a scenario represents the extreme end of things, he noted. “So far, the coronavirus appears fairly contained, and is more or less following the playbook of the 2002-03 SARS (severe acute respiratory syndrome) outbreak centered in China and Hong Kong,” Eitelman explained. At the moment, the virus is simply a risk factor that needs to be watched, he said.

So, how did the SARS outbreak affect financial markets? It led to downward pressure on stocks in the region, Eitelman said, noting that Hong Kong’s equity market index sold off approximately 10% to 15% in early 2003. However, markets rebounded fairly quickly afterward, he pointed out.

“For financial markets, the key lesson learned from the SARS outbreak is that if a disease is ultimately contained, a rapid bounce-back in markets and a quick normalization in economic conditions is possible,” Eitelman stated.

Key week for earnings season looms as tech companies set to report

Switching gears to earnings season, Eitelman said that of the roughly 20% of U.S. companies that have reported so far, approximately 70% are surpassing expectations. “It’s important to note that the bar for fourth-quarter earnings was set quite low, with consensus expectations calling for another period of negative earnings growth,” he said.

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