Author: Dorian Holden

Investors are fearful of the coronavirus outbreak.

It’s why the Dow Jones pulled back in recent days.  It’s why Starbucks, Estee Lauder, Yum China Holdings, and Royal Caribbean all pulled back.  All because they have exposure to China.

To date, 4,515 people have been infected, with a nurse in Wahun saying up to 90,000 people may actually be sick. Up to 106 people have died. Chinese hospitals are reportedly overwhelmed. Lunar New Year celebrations have been canceled.

Multiple cases have now been spotted in Hong Kong, Macau, Taipei, Thailand, Vietnam, South Korea, Singapore, Malaysia, Japan, Australia, France, Nepal, Cambodia, and the United States. In fact, in the U.S. the CDC confirmed its fifth case in Arizona.

The CDC just issued a Level 3 warning, advising travelers to avoid non-essential travel to China.

In fact, according to the CDC:

“CDC recommends that travelers avoid all nonessential travel to China. In response to an outbreak of respiratory illness, Chinese officials have closed transport within and out of Wuhan and other cities in Hubei province, including buses, subways, trains, and the international airport.  Additional restrictions and cancellations of events may occur. There is limited access to adequate medical care in affected areas.”

Investors have gone into panic mode over this, selling everything.

It’s creating a “blood in the streets” buy opportunity.

“Whenever there’s a new virus outbreak, people are egged on by the media echo chamber, which latches on to the story and repeats it ad nauseum, drilling fear and concern into the minds of investors and the general public alike. The same thing happens on social media, where rumors can spread unchecked,” notes MarketWatch.

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.” He knew that very well, considering he made a small fortune buying the panic that followed the Battle of Waterloo against Napoleon.

Sir John Templeton would tell investors to buy excessive pessimism.

Warren Buffett still advises that a “climate of fear is your friend when investing; a euphoric world is your enemy.”  And of course, we all remember his advice to “be fearful when others are greedy and greedy when others are fearful.”

In short, investors may want to use fear as an opportunity to buy beaten down stocks.

“If history is any guide, the weakness in Royal’s stock could present a compelling buying opportunity as consumers have been fairly quick to shrug off illness outbreaks in recent years,” says William Blair analyst Sharon Zackfia, as also quoted by MarketWatch. The cruise industry actually did better after the SARS outbreak and “more recent outbreaks such as Zika or Ebola have had no discernible impact on cruise demand.”

Other stocks that should recover are Nike, Starbucks, Estee Lauder, Walt Disney, IMAX, Wynn Resorts, Las Vegas Sands, and Marriott International.

The coronavirus has gone global.

At the moment, 2,900 people around the world have been infected.  Up to 81 people have now died. Chinese hospitals have been “overwhelmed.” Public transportation is being closed down to prevent the spread. Lunar New Year celebrations have been canceled.

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.  

“CDC believes the immediate risk to the U.S. public is low at this time, but the situation is evolving rapidly,” Dr. Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases said, as quoted by CNBC, adding that there is likely to be more cases in coming days. “We have our best people working on this problem.”

According to Senator Schumer, “All CDC has to do is declare the coronavirus an emergency and that will spring up to $85 million that’s immediately available… to prevent the spread,” per a tweet from The Hill.

World Health Organization’s (WHO) director-general Dr. Tedros Adhanom Ghebreyesus is reportedly traveling to China to collect more data before declaring a public health emergency.

Three Top Coronavirus Stocks

Alpha Pro Tech (APT), which manufacturers masks and protective clothing, has seen its share price rocket from $3.60 to $7.75 in recent days.

Inovio Pharmaceuticals (INO) is also still gaining traction 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 with a near-term price target of $6. INO stock has run from $43 to $5.44.

Biocryst Pharmaceuticals (BCRX) is evaluating galidesivir that could potentially treat the coronavirus. Shares of BCRX have run slightly from $2.82 to $3.11 so far.

The coronavirus has gone global.

To date, 26 people around the world have now died, and another 900 have been affected around the world.  Chinese hospitals have been “overwhelmed.” Public transportation is being closed down to prevent the spread. Lunar New Year celebrations have been canceled.  

The virus has also made its way to the U.S.

In fact, the CDC just confirmed the second case of the virus today in Chicago – and are now monitoring 63 potential cases stretching across 22 states.  

“CDC believes the immediate risk to the U.S. public is low at this time, but the situation is evolving rapidly,” Dr. Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases said, as quoted by CNBC, adding that there is likely to be more cases in coming days. “We have our best people working on this problem.”

At this time, the World Health Organization has declined to designate the virus as a global health emergency.  According to CNBC, they’re trying “to contain the fast-spreading illness without unnecessarily spooking global trade.”

In addition, a U.S. Senator just said the CDC is about to confirm the third case of the virus in the U.S., as reported by Zero Hedge. Other cases are rumored to have been found in Texas and at LAX.  But neither have been confirmed. 

As of Jan. 24, the virus has hit China, Thailand, Taiwan, Japan, Singapore, South Korea, Vietnam, and the U.S.    

A new coronavirus is quickly spreading throughout China.

At the moment, 17 people have now died, with 548 confirmed infections.  The situation has become so dire the World Health Organization (WHO) may declare an international public health emergency as early as today.  Health officials are also concerned the virus could spread further during the Lunar New Year celebrations.

“China’s Bureau of Disease Prevention and Control said that while the virus does not appear to be as virulent as the one that caused a SARS — severe acute respiratory syndrome — pandemic 17 years ago, it is nonetheless ‘highly infectious,’” says NPR.

“The virus is mainly transmitted through the respiratory tract,” Li Bin, vice minister of China’s National Health Commission, which oversees the bureau, said at a Wednesday news conference of a health expert panel in Beijing. 

“It may mutate and there is risk of further spread. “We have ensured management of export channels such as temperature checks at airports, train and bus stations, and ports … And we will reduce as much as possible events with large crowds.”

According to CNN, “Tour agencies have been banned from taking groups out of Wuhan and the number of thermal monitors and screening areas in public spaces will be increased. Traffic police will also conduct spot checks on private vehicles coming in and out of the city to look for live poultry or wild animals, after the virus was linked to a seafood and live animal market.”

Virus Could Severely Impact Travel and Oil Prices

According to Goldman Sachs, the virus outbreak could shave up to $3 off oil prices thanks to a slowdown in air travel, reports CNBC.  “Using the 2002-2003 outbreak of SARS as a reference case, the firm said coronavirus could cause jet fuel demand to drop by 170,000 barrels per day, with overall demand declining by 260,000 barrels per day.”

“Ultimately we expect jet fuel markets – including cracks, regrade and Asian differentials – to decline most if this outbreak persists given the likely decline in regional air travel,” Goldman analyst Damien Courvalin said in a note.

Major automakers are recalling nearly six million vehicles thanks to airbag issues.

Toyota, for example, is recalling 3.4 million cars because airbags may not inflate in a crash.  The recall will cover 2011-2019 Corollas, 2011-2013 Matrix, the 2012-2018 Avalon, and the 2013-2018 Avalon Hybrid.  

“The issue has to do with an electronic control unit designed to get signals from crash sensors, in order to deploy airbags and tighten seat belts. But Toyota said there may not be enough protection against certain ‘electrical noise that can occur in certain crashes,’” reports CBS News.

The automaker says anyone impacted will be notified by mail by March 2020.

Honda is Recalling 2.4 Million Cars

Over at Honda, the company has issued a recall of 2.4 million cars in the U.S., and another 300,000 in Canada because of Takata airbag inflators.  According to CNN, some Acuras produced between 1996 and 2003 might have dysfunctional Takata airbag inflators that might have been produced without the “appropriate seals” needed to deploy properly.

“Unlike previous recalls, the inflators do not contain volatile ammonium nitrate,” added CBS.

Unfortunately, other automakers continue to deal with the fallout from the airbag issues, too.

Takata, which is now bankrupt, is recalling 10 million other front inflators sold to companies like Audi, BMW, Fiat Chrysler, Ferrari, Ford, General Motors, Nissan, and Volkswagen.

Since mid-2019, General Electric (GE) has been explosive.

To date, GE shares have run from $7.74 to a high of $12.05 with CEO Larry Culp telling investors better days are ahead.  

Analysts are just as bullish.  

UBS for example upgraded the GE stock to a buy rating with a price target of $14 a share, calling 2020 an “inflection year” thanks to debt repayment and better free cash flow.

However, Boeing’s (BA) 737 MAX issues could do some damage.

Boeing just announced it doesn’t expect for the 737 to fly commercially again until mid-2020.  

“Until recently, Boeing had often suggested the fixes were almost ready to be submitted to regulators and approval was imminent,” reports NPR. “But in December, FAA Administrator Stephen Dickson pushed back against Boeing’s then-CEO Dennis Muilenburg for suggesting repeatedly that the Max would be recertified before the end of the year, saying the regulatory agency would not be pressured into granting quick approval.”

Nowadays, the company is telling airlines and its suppliers that it doesn’t expect regulators to sign off on the 737 until the middle of 2020 — months later than anticipated.

Plus, the Federal Aviation Administration hasn’t said when it will clear the plane for flight.

“The agency is following a thorough, deliberate process to verify that all proposed modifications to the Boeing 737 MAX meet the highest certification standards,” the FAA said. “We continue to work with other safety regulators to review Boeing’s work as the company conducts the required safety assessments and addresses all issues that arise during testing.”

With that, Bank of America believes the news could threaten Boeing’s supply chain, which includes General Electric.

At the moment, the 737 MAX problem is cost GE about $400 million in cash burn every quarter, as highlighted by Barron’s.  The good news is that “cash burn due to the MAX should reverse when the plane flies again, as global aviation stakeholders continue to expect. Still, Boeing’s growing woes represent a watch item for investors.”

China is again battling the spread of a SARS-like coronavirus.

In fact, a mysterious Wuhan virus is sweeping across Asia and has already infected more than 300 people with authorities worried it could only get worse.  “The outbreak of a SARS-like coronavirus in Wuhan is developing into a major potential economic risk to the Asia-Pacific region now that there is medical evidence of human-to-human transmission,” said Rajiv Biswas, Asia Pacific Chief Economist for IHS Markit, as quoted by CNBC.

It’s getting so bad The World Health Organization will hold a meeting this week to determine whether to declare the outbreak an international public health emergency – a rare move. 

All as China said the virus was contagious between humans.

Airports in the U.S., Australia, and throughout Asia are already screening all passengers from Wuhan as well, where six people have already died.

In addition, according to CNN, “Tour agencies have been banned from taking groups out of Wuhan and the number of thermal monitors and screening areas in public spaces will be increased. Traffic police will also conduct spot checks on private vehicles coming in and out of the city to look for live poultry or wild animals, after the virus was linked to a seafood and live animal market.”

Those new measures follow President Xi Jinping’s ordered “resolute orders to curb the spread.”

Unfortunately, there are fears China may have acted too late with millions of folks expected to travel across the country and overseas for the Lunar New Year. That’s only compounding concerns of even bigger spikes in cases.

Reportedly, the virus belongs to the same family of viruses as SARS, which killed nearly 8,100 people around the world during the 2002-03 outbreak that also started in China.

Stay tuned for more on this developing story.

Impeachment hearings in the Senate begin shortly.  

Days after the House impeached President Trump, a trial will now convene in the Senate, where Democrats and Republicans are already arguing over rules and a possible motion to dismiss.

Senate Majority Leader Mitch McConnell and Senate Minority Leader Chuck Schumer will speak on the Senate floor before the trial convenes at 1 pm EST.  

McConnell’s Outline of Proposed Rules

Per a four-page resolution found here, both sides will be given 24 hours over two days each.

After opening arguments and hours of questioning from Senators, there will then be a vote to consider bring in witnesses.

“If the Senate agrees to allow either the House of Representatives or the president to subpoena witnesses, the witnesses shall first be deposed and the Senate shall decide after deposition which witnesses shall testify, pursuant to the impeachment rules,” the resolution says.

“No testimony shall be admissible in the Senate unless the parties have had an opportunity to depose such witnesses. At the conclusion of the deliberations by the Senate, the Senate shall vote on each article of impeachment.” 

However, Democrats are Crying Foul

“McConnell released an outline of the trial rules that largely resemble former President Bill Clinton’s 1998 impeachment trial. But the rules in Trump’s trial depart from Clinton’s in key sections — most notably in the time constraints placed on both sides to state their cases — and Democrats have been quick to cry foul,” as noted by CNBC.

McConnell is “hell-bent on making it much more difficult to get witnesses and documents and intent on rushing the trial through,” Schumer said. “On something as important as impeachment, Senator McConnell’s resolution is nothing short of a national disgrace.”

Not only Democrats accusing Republicans of attempting to “cover up” rules for Trump, they’re crying foul because as we saw in Bill Clinton’s trial, McConnell’s resolution “requires a specific vote in the majority-Republican chamber to consider evidence brought over from the House.”

Whatever happens, it’s still very unlikely that two-thirds of the Senate will vote to convict President Trump and remove him from office.  

The 10-year bull market could rage on well into 2020, say most analysts.

In fact, Invesco global markets strategist Brian Levitt believes the Dow could hit that milestone this year, as noted by Yahoo Finance.  All thanks to sustained low interest rates, strong economic growth, earnings growth, and the fact we’re making big progress on the trade war with China.

Better, markets could care less about impeachment proceedings.

Most are betting President Trump’s case will be tossed by the Senate.

Granted, we’ll see potential downside and volatility by 2020 elections.  However, investors won’t start pricing that in until November, in our opinion. Until then, as long as there’s further improvements to the economy, and hopeful progress on phase-two of the trade agreement, Dow 35,000 isn’t out of the question.

“It’s going to 35,000. I’m sure that didn’t surprise you. The reality of the situation is that the fundamentals are so strong you can’t stop it,” says Neil Hennessy, chairman and CIO of the Hennessy Funds, as quoted by Forbes.

Billionaires are just as bullish.

David Tepper, for example, still likes this bull market.  “I love riding a horse that’s running,” he told CNBC.  “We have been long and continue that way.”  

Stanley Druckenmiller agreed with Tepper, and also noted he’s still “riding the horse.”

“I revealed a very bullish posture intermediate term since October when [Fed Chairman Jerome] Powell guaranteed he would not rescind the insurance cuts,” Druckenmiller said, as quoted by CNBC. “In addition, Trump’s election prospects have increased with two trade agreements and big win in Iran which the Democrats have responded poorly to.”

We may very well see further upside, as the U.S. and China begin work on phase-two of the trade deal.  In fact, President Trump has said he would travel to Beijing to discuss a second trade truce shortly, per a Dec. 31, 2019 tweet.  

He added that tariffs will end in phase two of the deal.

However, we will see pullbacks.

Markets never run up in straight lines.  All have corrections along the way, which much be taken into consideration if you’re long without a hedge for downside.

“Since 2010, the Dow has experienced 22 pullbacks and 16 of them were drops between 5% and 10%. Those 16 took an average of only 35 trading days to recover lost ground. The other six pullbacks sank between 10% and 20%. But they only took an average of 120 days to regain their losses,” reports Forbes.

For example, we do expect to see pullbacks as we near the 2020 presidential election.

After all, markets hate uncertainty, which is why we typically see markets pull back prior to election results.  It’s just something to keep in mind.

Remember, as Warren Buffett has said, “Be fearful when others are greedy.” 

We could see higher highs this year.

The economy is still strong.  Phase one of the trade war is a done deal.  Phase two is now underway with the U.S. demanding an end to China subsidizing its state-owned enterprises to end what the U.S. calls cyber-stealing, says CNBC.

Unfortunately, we may also see big drops and heightened volatility in 2020, as well.

In fact, it’s not uncommon in presidential election years.

2000 Election Year

Ahead of the Bush v. Gore election, the Dow Jones fell from 11,400 to around 9,650.   The VIX popped from 16.50 to nearly 32.  

2004 Election Year

Ahead of the Bush v. Kerry election, the Dow Jones fell from 10,400 to less than 9,700.  We also saw a small increase in the VIX before things began to cool off.

2008 Election Year

2008 was an interesting year with the subprime fallout.  Obama v. McCain also added to the downside and volatility because of uncertainty.  The Dow would fall from 11,500 to 7,500.

2012 Election Year

In 2012, we saw a match between Obama and Romney.  While we typically saw increased volatility ahead in most election years, 2012 only saw slight downside in the Dow Jones.

2016 Election Year

As expected, the VIX exploded higher.  This time it would run from 12 to more than 22, as the Dow would trend lower.  All thanks to uncertainty and volatility.   

While investors can make money from the expected downside and volatility, they can also make money on the long side, too.  In fact, once election-uncertainty is removed, markets tend to run higher shortly after.  

It’s just something to keep in mind if you’re looking for election-based opportunities.