The Atlantic report “The official Coronavirus numbers are wrong and everyone knows it” more or less charged the U.S. health system with incompetence. The story noted that fewer than 500 Americans had been tested for the virus when South Korean officials were testing 10,000 people daily.
Author Alexis Madrigal wrote, “Now that the U.S. appears to be ramping up testing, the number of cases will grow quickly. Public-health officials are currently cautioning people not to worry as that happens, but it will be hard to disambiguate what proportion of the ballooning number of cases is the result of more testing and what proportion is from the actual spread of the virus.”
The coronavirus is definitely spreading south of the border but because of the lack of testing, no one really knows where or how quickly.
Human psychology dictates that these types of information vacuums will often be filled with horror stories, and this tendency extends to asset markets.
Cataclysmic projections are everywhere in financial media. As an example, the usually levelheaded Mohamed El Erian, chief economic advisor at Allianz, is concerned about another financial crisis.
Specifically, Mr. El Erian’s fear centers around the ocean of investment grade corporate debt that “that hangs over the high-yield market like a Damocles sword.” A coronavirus inspired global economic slump could result in numerous corporate debt issues being downgraded from investment grade to junk status. This in turn would force portfolio managers to sell them into an illiquid market.
Jim Bianco, president and CEO of Bianco Research, envisions a different kind of investor nightmare. For Mr. Bianco, the equity market sell-off after Tuesday’s surprise rate cut by the Federal Reserve signals “a secular shift in thinking.”
Mr. Bianco worries that the coronavirus has so disrupted global supply chains that a process of de-globalization is set to begin. This potential trend, which would involve moving manufacturing operations from developing countries to cities closer to their home markets, would result in inflation pressures that would end the bull market.
In this scenario, he believes the price to earnings multiple for the S&P 500 will drop from current levels near 20 times, to between 12 and 15 times. This re-rating would see the market drop further by 20 to 30 per cent.
It’s the information vacuum – the inability to predict the course of the epidemic – that makes these dreary forecasts sound more plausible.
There are good reasons to read credible bearish forecasts. Investors can track the spread on BBB-rated corporate bonds, for instance, and if it widens quickly Mr. El Erian’s worries become more palpable, and may require portfolio de-risking.
Investors should remember however that even if we are more susceptible to negative outlooks in the current environment, the optimistic forecasts are just as likely to be accurate when no one knows what’s going
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Harvest US Investment Grade Bond Plus ETF. It’s easy to understand why we’re seeing the launch of more fixed-income funds. One that recently came to my attention is of special interest to investors looking for a bond ETF that offers a decent yield and, as a bonus, has a socially-responsible mandate. Gordon Pape takes a look.
The Rundown
Coronavirus fears fuel massive surge in ETF trading
As the shock of a potential pandemic ripples through the global financial system, investors are flocking to exchange-traded funds to move unprecedented sums of money. Last week alone, when U.S. stock indexes had their worst week since the global financial crisis, ETFs on American exchanges traded a record US$1.4-trillion, more than quadrupling the weekly average. Tim Shufelt looks at the trend.
Income-seekers, this stock market correction’s for you
Income investors with cash on hand are big winners in a stock market decline like we’re seeing right now. Rob Carrick looks at four stocks to keep an eye on as falling markets drive their dividend yields higher.
Timing the stock market simply does not work
The turmoil in the stock market over the past week was triggered by the coronavirus and the fears of a pandemic. The impact on people’s health, the economy or the stock market – at least in the short run – is unknown. Fear of the unknown is a common trait and it is compounded by the challenge that many investors believe that they can time the market – get out now and get back in when the markets start to recover, writes Sam Sivarajan.
Others (for subscribers)
Wednesday’s analyst upgrades and downgrades
Wednesday’s Insider Report: Chairman invests over $2-million in this safe-haven play
Tuesday’s analyst upgrades and downgrades
Tuesday’s Insider Report: Company leaders top up their positions in these 3 dividend stocks
Is this the end of value investing or the beginning of a golden period for value stocks?
What the U.S. bond market is saying about investors’ hopes
Others (for everyone)
Top U.S. stockpicker Michael Baron bets on research, not nerves
Monday’s sharp rebound may not be sign that market volatility has ended: experts
Is it a currency? A commodity? Bitcoin has an identity crisis
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Compiled by Globe Investor Staff