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Wkly Round-Up thru Jan 31st 2020; Markets Need a Flu Shot!

Hey everyone, it is Super Bowl weekend and I for one and really looking forward to this game…I hope the game lives up to the Hype! And regarding Hype, the markets this past week clearly went into the Risk Off mode with the potential contagion effect of the Corona Virus. Thus far this YTD we are down in all major US indexes except for the NASDAQ.

Weekly Sound-Bites:

• The market action this week ended on a down note mostly from the potential contagion of the Corona Virus from China…with Risk Off environment taking charge this past week it is helpful to review what are the potential risks the markets face in 2020…Near term is the Corona Virus and how the Chinese respond…clearly they will add more stimulus to their economy but with their economy already highly leveraged the risks could increase the likelihood of more systematic downside risks should Global Markets continue to contract…
• President Xi could underestimate the ramifications of more stimulus and inadvertently fuel an even greater debt bubble in their economy…and with the Chinese economy now the second largest Globally, any missteps in China will be felt everywhere…travel and casino stocks have been hit hard with Oil (down 16% in Jan) and Copper (down 10% in Jan) taking a beating as well in this first month of the year…some analysts are revising China’s GDP 2020 growth down from 6% to 5.6% due to the necessary measures needed to get this virus under control…this would also slow Global growth by 0.20%…so far 3 major US Airlines (Delta, United and American) have banned all travel to China for at least 2 months with the US State Dept issuing a Level 4 warning (highest level) advising Americans not to travel to China while the CDC issued a quarantine for 195 Americans who were evacuated from Wuhan, China as a preventive measure…by the way, this is the first time a mandatory ban has been issued in over 50 years….
• We’ve seen the total amount of Global Debt below zero rates rise over $2 Trillion to slightly over $13 Trillion USD this January, so clearly more stimulus and more debt drives yields lower and we are currently seeing this also play out in the US markets with the US 10 Year Rates moving from 1.91% to 1.52% currently representing a push lower by over 20%! What does the Bond market know that the Equity Markets do not? Keep in mind the Bond market is a proxy for the future expectations of the economy and in this particular case, it does not give a high degree of confidence…and these rates have been come down long before the Corona Virus surfaced and become known to the markets…
• And with all the issues the markets are currently dealing with, let’s not forget we are in the thick of Q4 Earnings Season and so far, companies that have reported are holding up nicely…with the earnings expectation bar very low, it is much easier to pull in a beat and that is what we are seeing so far…and for 2020 earnings most analysts expect earnings growth of over 9% but even if we cut those estimates in half we could see positive market price appreciation this year…

Weekly Round-Up;

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