Peak Coronavirus

361 Capital Market Commentary | February 3rd, 2020

With the weekend’s new cases and fatality data being released, it now appears that the Coronavirus has no longer adopted an exponential trajectory. Foreign new case numbers are slowing and there are those who have recovered from the virus. That said, the virus will continue to infect and more lives will be lost, but for now it appears that the worst case scenario will be avoided. Of course in slowing the spread, the world has also slowed the global economy for the quarter. Especially hard hit will be China who seems to be preparing for a quarter of their GDP to be lost in the near term. And because they are the largest consumer and buyer of global commodities, all prices have been hit hard. This will have many pluses and minuses all around the world as the shut down and recovery ripples through.

The importance of earnings releases has taken a backseat due the Coronavirus. For those companies with high sales to China or a dependency on a global commodity, near-term forward analysis might be a bit trickier. But those companies with strong franchises playing the long game should not need to worry. The market pullback will give long-term investors an opportunity to add to their positions or buy new ones. Speaking of great numbers, Microsoft, Apple and Amazon crushed it last week. Once again we are reminded why these three companies trade at the highest market caps in the world.

Keep an eye on earnings. And if you were waiting for the virus angst to peak before you started buying, I think that you are good to go now. Great job K.C.

Good news: Coronavirus cases inside of China are not growing exponentially, and cases outside of China are now slowing…

Coronavirus Cases
(WHO)

This is a good dashboard to monitor the Coronavirus activity…

Global Cases by Johns Hopkins
(2019-nCoVGlobalCasesbyJohnsHopkinsCSSE)

The China Central Bank has something for the Coronavirus…

China Injecting Liquidity as Markets Reopen
(Reuters)

Global growth pressures from the virus caused the 3-month/10-year Treasury yield curve to invert last week…

Tweet from @elerianm

The Atlanta Fed has lowered its GDP estimates on recent U.S. data which has been weaker due to Boeing and the virus…

Evolution of Atlanta Fed GDPNow
(FRB/AtlantaFed)

The markets have now moved to the potential for two Fed rate cuts this year…

Probability of 2 Fed Rate Cuts in 2020
(WSJ/DailyShot)

This is good news for home buyers who are jumping to take advantage of lower rates…

Tweet from @MatthewPhillips

Such a true statement of the times…

Tweet from @ReformedBroker

And because of the times that we are in, Apple is now worth more than the entire DAX Index…

Apple is now larger than Germany's 30 biggest companies combined
(FinancialTimes)

A year ago, would anyone have guessed that we would be comparing the market caps of Exxon Mobile and Tesla right now?

Tweet from @michaelsantoli

At this price the Exxon dividends are no longer likely able to offset the losses in the stock prices…

Now imagine a future stock price where Exxon cuts the dividend yield.

Exxon Mobil Hitting 10-Year Lows
(@JLyonsFundMgmt)

The Iowa Caucus is tonight…

First of all, caucuses are stupid. What idiotic process herds people around an auditorium until there is a list of winners. It is a lot of work and time spent for a result that can be thrown into the garbage can at the Convention. Just ask any Colorado delegate. That said, if you want to know why the GOP is ‘all in’ on a Bernie nomination, Steve Rattner has your answer…

Tweet from @SteveRattner

Meanwhile, the average Goldman Sachs institutional client is ‘all in’ on a Trump repeat…

Tweet from @JimPethokoukis

Back to earnings, the big clouds just killed it last week…

Tweet from @chetanp

Goldman Sachs gave the nod to Amazon’s quarter…

Thursday’s earnings report from AMZN was the best of the FAAMG lot. The company reported 4Q revenues of $87 billion (+21%), above consensus forecasts, and AMZN exceeded the high-end of its revenue guidance for the first time since 1Q 2018. GS analyst Heath Terry expects investment in faster deliveries, momentum in the advertising business, and AWS infrastructure and service expansion will support further revenue acceleration throughout 2020. Consensus forecasts 18% sales growth and 17% EPS growth for full year 2020 followed by sales and EPS growth of 17% and 47%, respectively, in 2021.
(Goldman Sachs)

This will be the last very big week of S&P 500 earnings…

Most Anticipated Earnings Releases
(@eWhispers)

While the Fed’s favorite indicator continues to show little inflation…

US PCE Inflation YoY
(WSJ/DailyShot)

…I can be certain that the Fed doesn’t eat their meals in Denver…

Poke City Notification
(From a local WRB reader)

But as RenMac notes, wages might be rising quickly, but productivity is rising as fewer workers are needed…

And as the N.Y. Times detailed last week, this is why you want to double check your drug prescriptions before you take them!

Tweet from @RenMacLLC

Wage growth will continue until the “Jobs Plentiful” vs “Jobs Hard to Get” ratio changes…

Tweet from @Not_Jim_Cramer

A new downward pressure to future inflation will be the sharp downward move in commodity prices hit by the Coronavirus…

Oil is the biggest commodity in the world. And what a beating it has taken as China’s demand has fallen by 20%.

NYMEX Crude Oil
(WSJ/DailyShot)

If you want to see China’s importance to all global commodity prices…

Tweet from @Birdyword

No doubt this report made Carl Icahn’s day…

Green Street Lowers Values for Top Tier Malls in US
(@DonutShorts)

Brexit happened on Friday night. Just a reminder of what U.K. companies have to look forward to…

@soapachu: A #Brexit story in three acts…

Brexit News Stories

Congrats to the Kansas City Chiefs on Superbowl LIV…

If you haven’t seen the Detroit Tigers scouting report on MVP Patrick Mahomes, you are in for a treat. How much do you think Heinz is going to write a check once they see this report?

Detroit Tigers Scouting Report

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