During his testimony, Hotez, who himself developed a SARS vaccine that never reached human testing, went out of his way to ding companies for raising expectations. “Unfortunately, some of my colleagues in the biotech industry are making inflated claims,” he told the legislators. “There are a lot of press releases from the biotechs, and some of them I am not very happy about.” – MIT Tech Review
As the WHO declares a global health emergency and countries around the world move to quarantine China, risk assets sold off with the S&P 500 returned -2.12% for the week. […] As long as the epidemic doesn’t deteriorate going into the second half of February forcing factory closures in China and impeding international trade, the global economic and markets outlook remains bullish, especially from 2H2020 onward. – Market Update – 2 February 2020
Market participants were largely caught off-guard by the string of national quarantines forced by the rapid spread of Covid-19 around the world causing markets to face the first liquidity crunch and US dollar shortage since 2008. In the fastest 20%+ drop in the S&P 500, we can expect markets to outrun the newsflow, and the newsflow to outrun the economic data as Covid-19 will dominate the three at least through Q2.
The questions on everyone’s minds right now include some variation of when everything will return to normal and/or whether the S&P 500 has bottomed yet, but the unpalatable reality is that Covid-19 has rendered most forecasts and economic data relatively useless beyond pointing to the obvious. As expected PMIs have plummeted and GDP growth projections for Q1 and Q2 look as dire as they ever have, but anyone claiming to know what a PMI in the 30s and GDP growth of -20% looks like, and what happens from here is being naïve at best and disingenuous at worst. Current conditions bear close watching as clues on what’s next will unfold quickly.
The logical starting point for any analysis begins with Covid-19 and from a naïve perspective, Europe and the United States seem to be roughly 2 months behind China, which is now in the process of lifting Hubei travel restrictions, with Hubei coming back online in early April. From a crude perspective, that, along with the fact that the average latency period of Covid-19 is around 14 days, suggests that by the end of April we should start seeing more re-openings in the US and Europe than closings, but it bears repeating that the situation is fluid and many relevant factors can change over the next 5 weeks.
