Last week, we discussed how the Coronavirus could have a short-term impact, but that earnings were important. We are the middle of earnings season. We saw some good earnings reports Tuesday, Wednesday and Thursday that drowned out the noise surrounding the Coronavirus. On Friday, we had some multi-national firms miss earnings. We also had a lot of CEO’s discussing the virus on their earnings conference calls. Short-term impact is significant. There are 16 cities in China with over 50 million people on lockdown until at least February 10th. This is hurting supply chains and supply lines. Looking back at history, SARS had a 9.6% fatality rate. The Coronavirus now has a 2.1% fatality rate. This is a gloomy statistic, of course, but it’s worth noting that SARS was a short-term situation. Will the Coronavirus be a similar situation?
Back in 2003 we had the SARS outbreak. The interesting thing is that from that point until now, China, as a nation, is double the size as then in terms of integrated supply chain. There are singular provinces that have as much of an impact now as the whole nation did 20 years ago. Most of the Chinese take around 2 weeks off with their new year but with the addition of the Coronavirus it is greatly lengthening the impact to supply chains.
The Coronavirus is really taking the front-page away from the politics. Iowans are going to the caucus today so we will get results overnight of who will win. Why is this important? The Iowa caucus has correctly predicted the winner of the democratic primary in every primary since 1992 when Bill Clinton won despite losing Iowa. Who wins Iowa will likely give the candidate a good tailwind to winning the primary. If you look at the candidates, there is a great dispersion of their plans and how that will affect markets and your money. We have provided charts in the video to show the drastic differences in each candidate plans. We don’t believe the market is pricing this in and we might see some volatility start to pick up in the next couple of weeks going into Super Tuesday. It’s important to know how different plans affect different sectors so it will be very important to keep an eye on.
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