Reaching a level where S&P500 again becomes attractive, the market would need to further dip another 12% – to levels around 2,730 – flirting with bear territory.
Indicating that we have only seen half of what is yet to come.
That is at least the opinion from some of the most clever rear-view mirror, hindsight is 20-20 pencil pushers out there.
As we correctly predicted January 30th and wrote about here: The Excuse the Markets Needed for a Selloff ? we see the market move mostly as a psychological reaction with very little basis in fundamentals.
We’ve seen this before and we know what happens next.
Coming from all-time-highs the reaction is a mix of profit taking and taking risk off because of the uncertainty.
To understand what is going on and the impact the Corona Virus is having on the markets it is important to separate the two most consequential categories:
- First and most importantly, the impact on people’s health and lives.
- And secondly, the impact on business and GDP’s.
The impact on people’s health and lives
The virus has thankfully shown to have a low mortality compared to other terrible epidemics such as SARS or Ebola.
However, it is significantly more severe than regular influenza.
The numbers out of China suggest that the mortality is age-dependant:
It is not quite binary to conclude if the mortality rate solely can be contributed to the 2019-nCov. And we might not be able to completely rely on the numbers out of China to be unbiased.
The impact on business and GDP’s
Quarantine has proven to be one of the only truly effective measures to contain the virus – so far. But with no other remedy in sight, it will have repercussions on the global economy.
Putting people in quarantine or completely locking down regions hurts a country’s domestic output.
Which, in turn, decreases the short-term GDP growth and deteriorates future market outlook.
Epidemiologists fear that China’s push for worker to return, could backfire, and allow the virus to spread even further.
Hong Kong tested the first canine positive for the virus, suggesting that the contagion can be diverse and also transfer through paper bills, packages and more.
The headline-driven sell-off is further amplified by the ETF driven rebalancing – the very same thing Michael Burry warned about.
“The time to buy is when there’s blood in the streets.” – Baron Rothschild
In our opinion, the much needed selloff has occurred allowing for a new base to be built from which to head north again through the old high.
In a few weeks so many will look back at this opportunity and say ”shoulda, coulda, woulda.”
Get long and be strong! ??