Time to look backward:
an S&P 500/Corona virus retrospective
Even though the corona virus outbreak in China had been on investor radar screens since the first of 2020 the S&P 500 managed to claw its way to a new all-time high of 3338 January 23. That happened to be the day China cut off egress from Wuhan City. The market took that seriously, dropping 3.5% over the next days. However, by February 19, the market sloughed that off and rallied to a new all-time high of 3394.
The bottom began to fall out February 24, when over the weekend new cases began to pop up all over the world, with more serious outbreaks in Italy and Iran.
I first wrote about the the virus and its potential to create problems for the market on January 27 (Markets and the media gird themselves to face a new challenge). At the time the facts on the ground and China looked like this:
Confirmed Chinese cases — over 2744
Confirmed Chinese Deaths — 80
Confirmed cases outside of china — 40
Today (March 8, 2020)
Confirmed Chinese cases — 80703
Confirmed Chinese deaths — 3098
Confirmed cases outside of China — 27239
Confirmed Deaths outside of China — 566
By contrast the low-side death estimate for the United states this flu season is 20,000 (average, ordinary, run-of the-mill influenza). This may turn out to be close to the actual number of deaths as many people may be using unusual caution about exposure during this flu season because of COVID19.
Meanwhile …
Back in China, the actual number of cases seems to have leveled off at about 80,000. Maybe even more instructive to the investor class in the US, the Shanghai Shenzhen CSI300 index seems to have bottomed in early February and is on the verge of breaking out to a new 52-week high.
Panic was the order of the day Friday with the VIX (CBOE Volatility Index) spiking to 54 before collapsing to close at 42. This looked like a key reversal day to me. This swing was massive from a previous close of 39.62, up 15 points to 54.39, down 12 to close at 41.94. This was the highest level attained since the financial crisis (’08/’09).
The U.S. Treasury 10-year note was in high demand (end-of-the-world demand) also, trading up in price and as low in yield as .66%. It closed the week at 77.3 basis points while the S&P 500 dividend yield was 1.97%, a 1.19% spread, which is huge! The spread is at a peak not seen since the height of the 2008/2009 financial crisis. We are no way close to a financial system melt down.
The Media
The media continues to do its job of providing a clear, calming, unemotional account of the facts … NOT! In a rush for ratings they continue to fan the flames of panic. You don’t hear much about China coming out of the tunnel (new cases way down, stocks way up) but what you do hear are comments like this:
(CNN)Just a week ago on February 29, there was one confirmed death from coronavirus in the United States. Now the rapidly-spreading virus has killed 19 people and affected more than 30 states and the District of Columbia, turning into a health crisis.
What they don’t mention in the paragraph above is the fact that fourteen of the unfortunate victims above all were residents of the same senior care facility in Washington state. As of 11:00AM CDT (3/8) there have been 464 confirmed cases on US soil represent 1.4 cases per million of our population.
Bottom Line: I cannot predict when clearer heads will prevail, but based on the action even in the VIX and ten-year Treasury, it feels like we are getting close. Stay the course.
P.S. for those of you looking for greater detail on the economy and additional thoughts on the Vix and bond market action I recommend the work of Fear and Greed Trader and Califia Beach Pundit.
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