“Simply put, our economy is strong, unemployment is at a 50-year low, household income is at a 20-year high, consumer sentiment is near record highs, and corporate earnings continue to impress.” www.Zacks.com
Q: So what went wrong?
A: The Coronavirus
The stock market does not like uncertainty, especially uncertainty centers around a question like, “How bad can it get?” More and more experts and market pundits are answering that question with some variation of “Pretty bad?”
While numbers of cases and deaths are really small compared to most annual flu outbreaks, the reaction has been much more radical. Deaths as a percentage of reported infections are relatively high, and with no known cure or vaccine on the horizon many are starting to use the “Pandemic” word. While we have heard of factory closings and quarantines in China, Italy with just 10 deaths reported so far, has quarantined whole towns, cancelled or closed schools, museums, football games etc.
El-Erian, a legendary market sage at PIMCO said back at the beginning of February that the coronavirus is going to “paralyze China,” adding that it will “cascade throughout the global economy.” He has been proven right. On Monday he added on CNBC that disruptions from “Shock” events tend to take time to work through the economy. Not the best support when the DOW is dropping 1000 points.
What is Fund Trader Pro’s take?
What we know is that the U S and other countries may soon feel the pinch of a shortage of many products as Chinese production is shut down. Apple and P&G have already warned of an impact to earnings.
Troubling news this week indicates a vaccine is at least months away and could be ineffective.
Quarantines/shutdowns in the U S would be crippling to our economy.
But….the rebound from pent-up demand could be huge. The caveat to this, which is a big caveat, is that the coronavirus could be just the start of an economic snowball. A strong economy can cover many blemishes, the warts will come out if employment is affected. In other words, we just don’t know. False alarm that blows over or global pandemic? Flip a coin.
Faced with uncertainty we are currently recommending that 401k investors decease their equity exposure. For our FundTraderPro.com subscribers we are advising to take 20% to 50% of your holdings and move them to a safer position. You will get specific sell and buy recommendations.