Author: Dorian Holden

Markets are flat on coronavirus fears – and could slip at any moment.

China’s National Health Commission has now confirmed 3,062 new cases, and a total of 97 additional deaths.  That brings totals to 40,171 cases and 908 deaths. 

Worse, it’s just starting to spread around the world.  In the UK for example, “The Secretary of State declares that the incidence or transmission of novel Coronavirus constitutes a serious and imminent threat to public health,” the U.K. health ministry said.  France was forced to close two school after five British citizens caught the virus at a French ski resort. 

Now even the director of the World Health Organization (WHO) warns that countries outside of China should be prepared for the spread to accelerate.  ‘The detection of a small number of cases may indicate more widespread transmission in other countries; in short we may only be seeing the tip of the iceberg,’” says WHO’s Tedros Adhanom Ghebreyesus, as quoted by MarketWatch.

Also, research firm Capital Economics says that based on forecasts for global GDP, the outbreak could cost the world more than $280 billion during Q1 of 2020, as reported by Zero Hedge.

Goldman Sachs Says Impact will be “Limited”

Goldman analysts say, “The impact of the lower global and U.S. economic activity on 2020 S&P 500 earnings per share will be limited,” as quoted by MarketWatch, as well.  “Investors who believe the economic consequences of the coronavirus will be limited should increase exposure to cyclicals and value stocks.”

Goldman also noted that barring a “significant change,” the virus’ impact would be focused on a select group of companies that are most exposed to China, including Yum China (YUMC) and companies like Qorvo (QRVO).  Sectors such as airlines and Macau casinos could also be impacted, given travel restrictions.

We must also consider that a good amount of fear has been priced into the markets, as well.

Perhaps it’s time to start buying the “blood in the streets,” as Baron Rothschild would, or even buy the extreme pessimism as Sir John Templeton would often do.

Jobs growth was explosive for January 2020 with 225,000 jobs added, as compared to expectations for an addition of just 158,000.  While the unemployment rate ticked higher to 3.6%, that was because the labor participation rate climbed to 63.4%.  

This now marks the 112^th month of job growth.

Some of the biggest gains can be found in education and healthcare, which added 72,000 jobs.  Construction added 44,000 jobs. “Weather likely helped the data as construction jobs grew by 44k, well more than the previous 6 month average of 11k,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group, as quoted by CNBC.

Leisure and hospitality climbed by 36,000.  Transportation and warehousing tacked on 28,300.  Professional and business services saw an increase of 21,000.  However, we did see declines in retail with a loss of 8,300 jobs, and a slip in manufacturing, which showed a loss of 12,000. 

“The report is unambiguously good,” said Ed Campbell, portfolio manager at QMA, as quoted by CNBC. “Strong growth and decent but not runaway wage growth should be good for stocks. Of course, we’ve had such a strong week, the markets are taking this in stride given how much we’ve been up so far.”

This follows the ADP report that showed an addition of 291,000 private jobs, which was well above estimates for 150,000. Leisure and hospitality added 96,000 new jobs.  Education and health added 70,000. Professional and business services tacked on 49,000. Construction added 47,000.  Even manufacturing rose by another 10,000.

Wages Came in Hot as Well

In fact, average hourly earnings rose 3.1% over a year ago to $28.44, says CNBC.  

“That marked 18 consecutive months of wage gains above 3%, as the initially reported 2.9% for December was revised up to 3%.”

Since the start of New Year 2020, crude oil plummeted from $65 to $50.75.

All thanks to the coronavirus, which led to a 20% decline in oil demand.

“Coronavirus represents a real threat to oil demand,” Patrick DeHaan, the head of petroleum analysis at GasBuddy, told ABC News.  “We are already looking at a real downturn in demand. You’re looking at thousands of flights being cancelled in China,” he added. “Some of it is certainly rooted in speculation and worry over the continued spread.”  

OPEC isn’t helping much either with Russia rejecting a Saudi plan to cut even more production.  

Initially, the Saudis supported cutting 800,000 to one million barrels to help balance markets with virus dears. After rejection, the Saudis proposed a compromise of 600,000 barrels. Should Russia agree to the compromise, the output curb from OPEC would jump to 2.3 million barrels.

The Chaos May Have been Priced In…

What we have to also consider is that a good chunk of bad news is priced in. Goldman Sachs for example, notes, there is “only modest further downside potential,” as quoted by Oil Price.

In fact, oil prices have sunk so low, it may be creating a “blood in the streets” opportunity.

Remember, as Baron Rothschild would tell investors, “The time to buy is when there’s blood in the streets, even if the blood is your own.”

Sir John Templeton would tell investors to buy excessive pessimism.  Even Warren Buffett still advises that a “climate of fear is your friend when investing; a euphoric world is your enemy.”

Eventually, the coronavirus story will be a distant bad memory.  Once that begins to happen, we could see a snap-back recovery in oil.  Contrarians are already aware of this potential as oil becomes far too technically oversold.

For example, if you pull up a two-year chart of crude, you’ll see it found support dating back to early 2019.  It’s also become severely oversold at its lower Bollinger Band (2,20) with oversold extensions on RSI, MACD, and Williams” %R.  From here, we could soon see a bearish gap refill around $58 a share.

Remember, oftentimes fear creates the greatest investment opportunities.

China just extended an olive branch – helping to send markets to higher highs.

All after announcing it’ll halve tariffs on hundreds of U.S, goods worth nearly $75 billion from 10% to 5%. Some goods will see tariffs drop to 2.5% — all taking effect on February 14, 2020.  

According to China’s Ministry of Finance, the move was made in order to “advance the healthy and stable development of China-U.S. trade,” as quoted by CNBC. Reportedly, this was timed in conjunction with the U.S. cutting tariffs on $120 billion of Chinese goods — from 15% to 7.5%.

China also noted that additional adjustments will now depend on how well trade issues evolve with the U.S.  There’s hope all tariffs can be eliminated on both sides.  

It May be a Sign China is Ready to Move Beyond Phase One Deal

“Who knows the exact motivations, I mean that’s quite plausible, that they’re under (economic) pressure. But I think the development is very welcome because you know, that language suggests that there is a bit of an olive branch here. And a bit of a desire to move forward beyond phase-one and possibly take on phase two,” said Kingsley Jones, chief investment officer at Jevons Global, as quoted by CNBC.

“I think that would be good … if we can get these tariff barriers lowered, and get a normalization of relations that also includes some negotiation about those other sticking points, you know the IP and so on. Then I think that’s very positive,” he added.

Despite this news, the U.S. is still leaving tariffs in place on $250 billion worth of Chinese products.  However, that could change as we near a potential phase-two deal. 

“Just as in this deal there were certain rollbacks, in phase two there will be additional rollbacks,” he told CNBC. “It’s really just a question of — and we’ve said before — phase two may be 2A, 2B, 2C. We’ll see,” says Treasury Secretary Steven Mnuchin, as also quoted by CNBC.  “The first step is really focusing on enforcement, but this gives China a big incentive to get back to the table and agree to the additional issues that are still unresolved.”

Over the last two days, markets have exploded higher.

All thanks to great earnings, fading coronavirus fear, and a much better than expected jobs reports from the ADP, which showed the best monthly gain in five years. 

In fact, according to CNBC, the jobs market added 291,000 private jobs.  That was well above estimates for 150,000. Leisure and hospitality added 96,000 new jobs.  Education and health added 70,000. Professional and business services tacked on 49,000. Construction added 47,000.  Even manufacturing rose by another 10,000.

The Dow is up another 230 points.  The S&P 500 is up 22.  

But the NASDAQ just turned red.  All thanks to a big, nasty drop in share of Tesla (TSLA).

Tesla Begins to Plummet

Just yesterday, shares of Tesla exploded to a high of $968.99. 

But it may have run too high, too fast.  “I just can’t believe this freaking stock. It’s insane,” Roth Capital analyst Craig Irwin said on CNBC.  “This is a big separation from those of us who like to pull out the calculators and look at reality.”

All as analysts have raised price targets coupled with short-covering.  

“I think this is largely the fear of missing out,” Irwin added. 

“The number of large hedge funds calling in, the number of institutional investors calling in, saying ‘Where does it stop? What’s the catalyst?’”

He’s not the only one sounding the alarm.

“Not to sound like an ‘Ok, Boomer’ to the younger investors rushing into TSLA shares, but the recent price action brings to mind NASDAQ c. 1999,” Barclays auto analyst Brian Johnson said, as quoted by CNBC.  “We continue to believe TSLA is fundamentally overvalued,” noted the analyst, who’s price forecast calls for a 65% plunge in the stock.

Worse, the stock is plummeting on news TSLA plans to delay Model 3 deliveries to China thanks to the coronavirus.  “The proposed delivery (of cars) in early February will be delayed,” Tao Lin, vice president at Tesla, announced on Chinese microblogging service Weibo, according to a CNBC translation, in response to a question from a user. “We will catch up the production line once the outbreak situation gets better.”

With such disappointing news, the NASDAQ may spend most of the day in the red.

There’s still no victor in Iowa – or official results.

Thanks to a largely unexplained and unprecedented delay, raising questions about legitimacy, campaign officials are less than thrilled.

“We found inconsistencies in the reporting of three sets of results,” the IDP said as quoted by Fox News. “In addition to the tech systems being used to tabulate results, we are also using photos of results and a paper trail to validate that all results match and ensure that we have confidence and accuracy in the numbers we report. This is simply a reporting issue. The app did not go down and this is not a hack or an intrusion. The underlying data and paper trail is sound and will simply take time to further report the results.”

It’s quite an embarrassment for the party – and a win for President Trump.  All as failures reportedly highlight that the DNC is incapable of overseeing an election.  Trump himself suggested the delay meant the caucuses were “rigged,” and that the party can’t be trusted to run healthcare or even implement government programs.  

“The Democrat Caucus is an unmitigated disaster. Nothing works, just like they ran the Country. Remember the 5 Billion Dollar Obamacare Website, that should have cost 2% of that. The only person that can claim a very big victory in Iowa last night is ‘Trump,’” he tweeted.

It’s not stopping some candidates from claiming victory.

Pete Buttigieg is claiming victory in the caucus despite no results.  

“It was an extraordinary night, and we are absolutely victorious coming into New Hampshire,” Buttigieg said in an interview on “CBS This Morning,” as quoted by Politico.

“We have the results from our organization, and if you look at what we were able to do, what happened last night, the fact that this campaign was able to gather support in urban, suburban and rural areas alike, in counties that Hillary Clinton won, counties that Donald Trump won, we are thrilled and absolutely consider that a victory,” he added.

Bernie Sanders’ team says he’s leading the caucuses.

However, at this time, it’s greatly uncertain when – or if results can be released soon.“We have zero official data from the Iowa Democratic Party at this point,” said Kate Bedingfield, Biden’s deputy campaign manager, as also quoted by Politico. “There are serious questions about the process and during this time where we have no official verified information from the Iowa Democratic Party, we have, you know, campaigns putting out incomplete data that doesn’t paint a full picture.”

There’s plenty of chaos in the markets.

All thanks to the coronavirus that’s now gone global. 

At the moment, there are 17,489 cases with 362 deaths.  South Korea just confirmed its first human to human transmission. Hong Kong is warning of surgical mask shortages.  Russia closed its border to China. Up to 6,000 people were just quarantined on a Italian cruise ship.  

The Philippines also just reported its first death outside of China.

Three new cases in California just pushed the number of U.S. infections to 11.

The World Health Organization declared the virus a public health emergency of international concern.  “The main reason for this declaration is not because of what is happening in China, but because of what is happening in other countries,” WHO Director-General Tedros Adhanom Ghebreyesus said as quoted by CNN. 

“Our greatest concern is the potential for the virus to spread to countries with weaker health systems, and which are ill-prepared to deal with it,” he added.

As the story has intensified, fear has rippled through markets.  

Investors are Now Buying the Excessive Fear, However…

While markets are skyrocketing early Monday, economist Mohamed El-Erian is warning investors not to buy the dip.  All on concerns the virus will take a major toll on China’s economy and dent global growth. “For a long time I though the market sentiment was so strong that we could overcome a mounting list of economic uncertainty,” El-Erian told CNBC. 

“But the coronavirus is different. It’s going to paralyze China. It’s going to cascade throughout the global economy,” he added.  “Importantly, it cannot be countered by central bank policy. We should pay more attention to this. And we should try and resist our inclination to buy the dip.”

Still, some strategists are still sticking by their 2020 market forecasts…

Major financial analysts are still sticking by their bullish year-end forecasts, despite the virus.

All view the China virus story as short-term risk rather than a threat that could derail the bull market.  “The virus development should not derail the recovery,” Mike Wilson, Morgan Stanley’s head of U.S. equity strategy, said as quoted by CNBC. “We continue to think this correction will be contained to 5% in the S&P 500…There is strong support at 3100 on the S&P 500 both technically and from a valuation standpoint.”

There’s pandemonium in the markets.

All thanks to an uncontained coronavirus that’s gone global. 

At the moment, there are 7,921 confirmed global cases with 170 deaths.  South Korea just confirmed its first human to human transmission. Hong Kong is warning of surgical mask shortages.  Russia closed its border to China. Up to 6,000 people were just quarantined on a Italian cruise ship.  

Multiple cases have now been spotted in Hong Kong, Macau, Taipei, Thailand, Vietnam, South Korea, Singapore, Malaysia, Japan, Australia, France and the United States. Nepal has confirmed one case. Cambodia confirmed its first case, too.

The virus has also made its way to the U.S.  In fact, the CDC just confirmed the fifth case in the U.S. – a patient in Arizona who recently traveled to Wuhan, China.  The CDC is also monitoring up to 110 possible cases across 26 U.S. states.

The World Health Organization (WHO) may also soon declare a public health emergency, after noting, “the whole world needs to be on alert.”  The group will meet today to discuss whether the virus constitutes a global health emergency.  

WHO has already said it was “of great concern” to see the virus spreading person-to-person outside of China.  A week ago, WHO “declined to give the new virus that designation, which would lead to more resources and greater global coordination in confronting it,” as reported by CBS News.

Stocks likely to run on the escalating issue include:

Alpha Pro Tech (APT), which manufacturers masks and protective clothing.

Inovio Pharmaceuticals (INO) is piquing interest after receiving a grant of up to $9 million from the Coalition for Epidemic Preparedness Innovations (CEPI) to develop a vaccine for the coronavirus. Maxim Group analysts reiterated a buy rating on the stock.  

Biocryst Pharmaceuticals (BCRX) is on radar screens, with the company evaluating galidesivir that could potentially treat the coronavirus.

U.S. infrastructure is in terrible shape.  Roads, bridges, dams, you name it…. 

They’re all in terrible shape.  However, it’s again becoming a big priority. 

In fact, House Democrats unveiled a $760 billion plan to fund infrastructure investments over the next five years.  According to The Hill, “The Democrats’ framework proposes $329 billion for roads and bridges, $55 billion for passenger rail, $30 billion for airport investments, $50.5 billion for wastewater infrastructure, $86 billion for expanding broadband access for rural areas, and $12 billion for a “next generation” 911 system for emergency calls.”

U.S. Infrastructure Barely Passes Inspections

The American Society of Civil Engineers (ASCE) just released its 2017 Infrastructure report card, describing the current state of everything from U.S. roads, airports, water systems and even bridges. And well… we didn’t do so well.  We got a D+.  

The next report from the ASCE due by 2021 may not be much better.

Not only are we barely passing, we need $588 billion for roads, bridges, and dams.  

Bridges are structurally deficient.

In fact, according to the American Road and Transportation Association, nearly 56,000 bridges in the U.S. alone are in bad shape.  More than 25% of current bridges are more than 50 years old.

More than 20% of major roads in the U.S. are in poor condition.

According to U.S News & World Report, “Our roads are getting worse by the day. The United States has set a new record for vehicle miles traveled, driving over 3.2 trillion miles in 2016, an increase of 70 billion miles from 2015. Congestion has been on the rise, and Americans waste incredible amounts of time sitting in traffic.”

Tack on lost productivity, poor public health issues, car damage, delays to the issues, and experts say to fix it all could cost us trillions more by 2020, according to the ASCE.

Since bottoming out at $152 in early 2019, shares have more than doubled.

The best part – the stock could easily hit $400 a share this year after posting blowout earnings.   EPS of $4.99 beat estimates for $4.55. Revenue of $91.8 billion was well above estimates for $88.5 billion.  iPhone revenue soared to $55.96 billion, which was above estimates for $51.62 billion. Gross margins rocketed to 34.8%, as compared to estimates for 38.1%.

Of course, analysts loved it.

“We would characterize these results and guidance as a ‘blow out’ print that will put more high-octane fuel in the bull thesis looking ahead,” Dan Ives, analyst at Wedbush, as quoted by MarketWatch, adding that the biggest positive was strong March guidance “on the heels of pent-up demand within the installed base which is now over 1.5 billion devices worldwide.”

Ives has a $400 price target on the AAPL stock, believing folks are undervaluing 5G.

Granted, some analysts, such as Wells Fargo’s Aaron Rakers remain skeptical of higher highs, there are still plenty of upside catalysts remaining here.  For one, the 5G boom has yet to be priced into the stock. Apple is expected to release its first 5G phones this year. Once that happens, Apple users are likely to upgrade.  

Better, analysts like Bank of America’s Wamsi Wohan – who reiterated his buy rating and raised the price target to $330 – believes Apple’s wearable device portfolio can push the stock higher, too.  What’s more is Apple now has $207.06 billion in cash, which it could use to double its dividend and buyback more AAPL stock. 

Some also argue the stock may still be cheap at current prices.

“If the business trends continue, one could argue that the equity, even though trading at a historically high price-to-earnings ratio, is still cheap, with more room to rise in the future. The company’s strong results will force sell-side analysts to take up their earnings and revenue estimates for both 2020 and 2021. Which is likely to help pull that price-to-earnings multiple lower and drive the stock price higher,” notes Forbes.

In short, Apple could see higher highs near-term with plenty of big catalysts ahead.