The Only Pandemic Is Fear - But I'm Still Selling

Financial markets have an impressive ability to discount (or predict) major events days in advance.

For example, think of the market declines leading up to 9/11 – the S&P 500 declined 7.79% over the ten trading days prior. Now, over the past five trading days, the S&P 500 has declined 12%, as market chatter is focused on Coronavirus cases outside China spiking up.
 
The Market changed this week, In my honest opinion, for a couple of other reasons besides the developing COVID-19 story:

  1. the US economy & some economic notes out of China.
  2. President Trump’s press conference on COVID-19 on Wednesday night.

President Trump’s press conference was a strange spectacle – with nine senior people on stage as the President disclosed the ‘Coronavirus Task Force’ will be headed by Vice President Pence, and will receive billions in initial funding. 
 
This did not jive with their message that ‘risks were extremely low’ and there are ‘just 15 cases in the U.S.’ (plus 45 from the Diamond Princess cruise ship). Even more alarming was the fact that, several times, President Trump referred to meetings with experts being brought in 'tomorrow' for discussions. 
 
Now, just prior to President Trump’s press conference it was announced a California person had tested positive for COVID-19 despite having no recent travel history and no known exposure to the virus, marking the first ‘community exposure’ in the United States.
 
So it is now quite likely the Coronavirus (now called COVID-19) is spreading unchecked among the general population in California. 
 
While warm weather and the likely small exposed population to date will keep infection totals low initially, each new case will weigh heavily on financial markets and a critical mass of 20, 50 or perhaps 100 cases could result in exponential case growth and possible hysteria – and that appears to be triggering a massive equity selloff. 
 
If this week’s new case was in fact a ‘community exposure’ infection, others in contact with the same carrier will likely test positive shortly (quite possibly resulting in several new cases by Monday) with a further wave of infections (spread by those infected by the initial carrier) beginning a week from now. 
 
These will be very damaging headlines – particularly given markets hate uncertainty more than bad news.
 
An early indication of the likelihood of the spread of the Coronavirus in the U.S. will come from the number of people being tested, which is reported daily by the Atlanta based Center for Disease Control (CDC): If those with newly-confirmed infections traveled, worked with or interacted with a large number of people, expect a surge in the number of people being tested after each new case. 
 
You can keep up to date on this number here. t As of the latest update—4:00 PM on February 25 (as reported February 2)—445 people had been tested in the U.S. resulting in 14 confirmed cases. 

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