Mitigating risk - became instantly out-of-favor as China plus the Fed (it's unknown if any of that was coordinated) dramatically increased liquidity to the markets. Now while we're optimistic (as normal humans must be) as relates to resolving the WuFu epidemic that threatens being a pandemic, we are not suggesting that the health challenge be resolved by 'decree'.  

The liquidity injections were responsible for the conventional reaction, but concurrently China essentially said everyone should go back to work and in a sense minimized the severity of the very outbreak labeled as 'grave' a few days ago. It didn't change, the dizziness of taking action surely got more efficient, but the exponential growth of the virus hasn't abated just because President Xi decrees it would be so.  

Even if Jean Luc Picard had a weapon to decree the virus go away, that won't make it so. Unless it was a programmable virus, the sophistication of which nobody suggests, it takes control and medication to 'engage' a serious solution to the impact of the coronavirus.  

Last night Dr. Gottlieb (former FDA head who referred to earlier) stated a belief this would evolve into a pandemic before a handle is achieved and he fretted that there would be small 'outbreaks' like 'cells' in the US during this challenge. This morning I listened to an Infectious Disease specialist from Johns Hopkins (Baltimore) on CSPAN, who was actually asked the question we've raised and his response was eyeopening.  

The question related to 'HIV being reported as 'in' the coronavirus', and it was this Doctor who became the first to flat-out acknowledge he saw the report with interest. Then the stunner: he said the report filed in a medical journal (we referenced The Lancet and an Indian Doctor report) vanished from the Journal, with no explanation and it is just simply been 'pulled'.  

It wasn't clear if the researchers/doctors that authored it 'pulled it' versus a bit of pressure from WHO (to a degree is under China's thumb) or some sort of undisclosed pressure or whether they now disavow the structured map of the genome that they posted. It's either a strand or not; so barring medical success, the virus structure doesn't change at a snap of fingers of whatever influences prevailed. Just want you to know. The same doc on CSPAN, however, acknowledged HIV antiviral meds are being tried.  

 The markets were moved by what I called in the morning video (below) a sort of A-B-C combination: Algorithms lifting the S&P clear of breakdown risks, Bullying by the Chinese to ram money into the system and proclaim time for business (we do understand the need while questioning whether it's premature), and Containment, which hopefully is having enough of an effect that (at least in North America) some angst will be ameliorated. (I'm reflecting what I believe is more of a propaganda style 'life goes on' as-is approach, rather than believing we have knowledge of all's-well yet, while sure if we get to this weekend without more case from the thousands of prior visitors to China that flew to the U.S. prior to shutdown, then yes.)  

So yes, lots of this was China and the Fed liquidity; an underestimation of recovery of growth and so on, and after all, we believed the recession was behind, not ahead, aside corrections. That was before the epidemic hit.  

Politically you had another impetus for this market. That's another 'C' for Caucus. It's really F for fiasco; as regardless of leanings, embarrassing a string of candidates with chaos to reward their campaigning and expense really discrediting their prospects as remaining the first of all primaries.  

I'm not debating whether this helped Mayor Pete versus Bloomberg from the sidelines, but while the caucuses seemed sort of quaint and likable (because participants reveal who their favorites are rather than privately), there was a clear victor from this: Donald Trump. Tonight he'll suggest of course the disarray in the Democratic Party (it's more technical with Iowa trying a different computerized approach and now tallied the paper trail), almost-historical time and money wasted on Impeachment proceedings, and regardless how anyone feels, this increases Trump's prospects; thus that too is a factor in today's market. 

 In-sum: it's hard to make predictions for 9 months forward on Elections and it's tough to say where the WuFlu epidemic will be in 3 months, but I suspect it will be relegated to control and winding-down by then (prayers as well as better medical treatment and control). It simply has to be.  

Stock markets are increasing responding to the influences we know of (a liquidity injection and algorithmic responses), but ignoring business and backdrops, while rationalizing hopes that they'll get better (we agree 'if' the virus is sort of moved to the back-burner though that's premature).  

But it's more than the WuFlu epidemic and Don Trump's presumed (it shows in the polls) improved prospects of winning (even his detractors do admit this has helped him), and maybe Sanders reduced prospects (while a broad belief exists that most Americans won't vote for his programs). It is also the S&P bouncing off that rising bottoms pattern and getting some space to 'swing' a bit, with what looks like 'cushion' about breakdown risk.

Bottom-line: a worry-wall upside explosion for reasons discussed (most are technical), with real risks continuing, especially from WuFlu, which is by no means contained as some statements (or commands) suggested in morning commentary out of China, or with the removal of medical papers submitted online or to The Lancet for peer-review, as per my remarks on watching the John Hopkins Doctor on CSPAN this morning. Hence we'd remain nimble, cautious, and suspicious of rebound extensions. 

Daily action - rather than greater disclosure, whether it's politics or China (with their moves to stoke liquidity, while punishing victims it seems like) a degree of ring-fencing is going on. (China imploring WHO to suggest the virus expansion is stable, or the injection of capital 'as if' that solves these problems, or even the lack of clarity on what happened in Iowa are all in the nature of ring-fencing and often bring more questions than answers.)

Amid this, the domestic political environment 'seems' to be slightly calmed with the apparent victory of Pete Buttigieg in Iowa. While results aren't yet very high at press-time, the achievement reflects several factors pressing to the moderate side of the ledger if it is replicated in other states. Tough to say, because if you combined Sanders and Warren results they trump (no pun intended) Mayor Pete's. But even with the day's delay travesty, it is interesting to see a significant trend away from extremism of any sort.  

Meanwhile, we send this out before the President's State of the Union just a bit less than an hour from now, and everyone has an idea what that will entail. If anything all recent events simply enhanced Trump's prospects, and that's irrespective of his persona.   

By the way, news from Japan says that Carnival's 'Diamond Princess', a cruise ship docked in Yokohama, reportedly having no patients aboard, as 3000 or so were being held in quarantine, well, unfortunately at least 10 cases have been diagnosed with the Wuhan coronavirus. The implication of this and other stories coming from cities like Nanjing in China, which is now suffering martial law imposition, is that clusters are developing and a trend of contagion among formerly-asymptomatic residents isn't resolved instantly as authorities (and to a degree markets) suggested today.  

In any event the market upside is first-and-foremost an effort to create a cushion or safety-zone of space about the edge of the technical abyss on a near-term basis. Even if the S&P gets a bit more reprieve after tonight's speech and political assessments, I suspect there's unfinished business on the downside, not to mention the implications on jobs, manufacturing, travel or any of the areas of concern in recent days, which are being sort of glossed-over. And though we wish it would all resolve instantly (such as the proclamations almost to that effect), that is not happening as yet.  

So be aware of it, and while the market can celebrate accomplishments of the Administration (while seemingly overlooking his personal failings); it's all important, but sort of masks the main event which has nothing to do with a desire to 'climb a worry wall', because 'if' the virus truly is as heavy as it may be in China (even if it never bothers America that much), there's going to be financial and growth ramifications that are unavoidable. That won't necessarily reverse our general view of S&P corrections being less than collapses, or in-line with a favorable macro context, it can prolong a period of difficulty, indecision at best, and rockier shakeouts that follow.