The following is an excerpt from Zacks Chief Strategist John Blank’s full Mar Market Strategy report To access the full PDF, click here
I. Introduction: Let’s get our disease spread terms right!
Epidemic is a term that is often broadly used to describe any problem that has grown out of control.
An epidemic is defined as "an outbreak of a disease that occurs over a wide geographic area and affects an exceptionally high proportion of the population."
An epidemic is an event in which a disease is actively spreading.
In contrast, the term pandemic relates to geographic spread and is used to describe a disease that affects a whole country.
...or the entire world.
II. A global coronavirus pandemic continues to unfold. Swiftly and dramatically.
Robert Muir-Wood, chief research officer of science and tech at Risk Management Solutions (RMS) -- a leading California-based company that makes catastrophe risk models for the likes of hurricanes, wildfires and earthquakes -- shared this with the NY Times. On March 5th, RMS sees a $1.5 Trillion loss taken from $86.5 Trillion in global output in 2019 due to a coronavirus.
That makes up a one-time global loss of -1.7%. “The only thing we’ve ever had which was bigger than that was the banking crisis,” Mr. Muir-Wood said, referring to the 2008 financial crisis, when credit markets seized up, and governments had to bail out banks and other institutions.
Exhibit A is Italy. First, the PM quarantined the region of Lombardy. The global hub of fashion and finance Milan is its capital. That region holds 16 million of Italy’s 60.5 million people. So, Lombardy makes up 26.4% of Italy’s population. Then, the PM moved to quarantine the nation.
On Sunday March 8th, the Italian prime minister (PM) signed a decree--
- The decree bans entering or exiting certain areas of the country, and closes museums, gyms, schools, universities and ski resorts.
- The measures affect 14 other provinces in neighboring regions to Lombardy, including Parma, Modena, Padua and Venice. Note: Beginning in 2015, Italy now has 103 institutional bodies at a “2nd administrative” level.
- Expect the decree to be in place until April 3rd, or roughly one month at the least.
Broad measures of risk appetite -- think of a VIX briefly over 50 -- signal a highly significant global risk event is underway. The VIX chart below shows a 54.02 print.
Perhaps a coronavirus pandemic event is much less significant than the 2008 Global Financial Crisis? The last time the VIX options volatility index was this high? The VIX topped a 62 print on November 1st, 2008. Here’s hoping that is the case.
However, a range of stunning negatives continue to pile up. With the effects of coronavirus shutdowns in China and beyond, the Feb. 2020 JPMorgan Global Manufacturing PMI fell sharply by -3.2 points to a contracting 47.2.
- Trade volumes weakened considerably.
- Lead times lengthened to their highest level in almost nine years!
The 10-year U.S. Treasury rate has headed down with JPM global manufacturing PMI. I saw a stunning 0.45% yield on March 9th.
III. Here is the American Hospital Association’s "Best Guess Epidemiology" for COVID-19 over next 2 months (from March 6th).
Prepare for a disease burden roughly 10x as severe as flu season.
Some of their U.S. only numbers are staggering. This shows. Shutdowns are critical. Governments can’t let the hospitalization and ICU numbers reach these levels.
- 96,000,000 infections
- 4,800,000 hospitalizations
- 1,900,000 ICU admissions
- 480,000 deaths
versus flu in 2019:
- 35,500,000 infections
- 490,600 hospitalizations
- 49,000 ICU admissions
- 34,200 deaths
IV. Additional links to keep track of Coronavirus 2019 (COVID-19).
(1) The Centers for Disease Control and Prevention (CDC): Coronavirus Disease 2019
(2) The Johns Hopkins Center for Systems Science and Engineering (CSSE): Coronavirus COVID-19 Global Cases
As this publication came to print, the Johns Hopkins database had 114,578 COVID-19 cases worldwide and 4,028 deaths.
Mainland China (80,576 cases) -- using dramatic quarantine measures not available to free democratic countries -- claims to have achieved stabilization of the spread, sometime in early March.
That is the good news.
China may be back to business sooner than the rest of the world.
Other hot spots?
On March 10th, Italy had 9,175. South Korea had 7,513 cases (but was stabilizing). Iran had 7,161. The U.S. had just 755 cases and Japan had 530 cases.
V. Zacks March Sector/Industry/Company Telescope.
Entering March, the Info Tech sector stayed on fire!
Growth stock industries across the Info Tech sector stayed at the top of our ‘buy’ list. Misc. Tech, Computer Office Equipment, Semis and Computer Software Services stayed top notch.
Health Care jumped back to Very Attractive. Medical Care regained lost ground. A Joe Biden win on Super Tuesday helped out.
Materials and Industrials remain very poorly ranked. These two sectors speak to global growth fundamentals punished by Coronavirus shutdowns.
(1) Info Tech remains Very, Very Attractive. Best-in-class by a wide margin again. Misc. Tech and Computer-Office Equipment led the way. But Semis and Computer-Software and Telco Equipment were strong too.
Top Zacks #2 Rank (BUY) Stock: Coherent (COHR - Free Report)
(2) Health Care went back up to a Very Attractive rating. Medical Care is tops.
Top Zacks #2 Rank (BUY) Stock: UnitedHealth Group (UNH - Free Report)
(3) Utilities rose from a Market Weight to Very Attractive. Utilities-Water Supply looks best.
Top Zacks #2 Rank (BUY) Stock: American States Water Company (AWR - Free Report)
(4) Consumer Discretionary fell from Attractive to Market Weight. Consumer Electronics and Media stayed hot. But Autos/Tires/Trucks and Leisure look poor.
(5) Financials rose from Unattractive to Market Weight. Investment Banking & Brokering stayed strong. Banks & Thrifts looked good too.
(6) Energy fell from Very Attractive to Market Weight. Oil & Gas Integrated bucked that trend and looked strong. Coal and Oil-Misc. looks terrible.
(7) Communications Services fell from Attractive to Unattractive. Telco Equipment led the way. But Telco Services and Utility-Telephone looked poor.
(8) Consumer Staples stayed at Unattractive. Beverages at Market Weight was the best an industry could do here.
(9) Industrials went from Very Unattractive to a still poor rank of Unattractive. Business. Machinery-Electrical and Construction-Building Services bucked the negatives here. The business cap-ex slowdown is stayed relevant again.
(10) Materials stayed Very Unattractive. Steel, Building Products-Construction Materials, and Containers & Glass are poor. In particular. Chemicals and Paper look awful. The latter two industries speak to the global growth slowdown & coronavirus.
VI. Conclusion: Raise your patience level!
Since 1980, -10% or more stock market corrections have led to fresh highs in major U.S. stock indexes 90% of the time.
But this one comes via a policy-induced recession.
The S&P 500 large cap index at 16.1 times 12M forward earnings is still not cheap.
John Blank PhD
Chief Equity Strategist and Chief Economist at Zacks
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