(New York)

Coronavirus fears continue to stalk markets. Just when it seems like it might be getting better, more news comes out to hurt markets. With that in mind, there are three sectors investors need to avoid because they will likely not recover from coronavirus for quite some time. Travel and tourism stocks are the main ones to avoid. Large US airlines have canceled all flights to the Chinese mainland until March and so far the estimate is that 13 million flights have been canceled. Cruse ships and other stocks that cater to tourists (even luxury retailers) are also likely to stay hurt for some time. Consider that even when the immediate panic over the virus dissipates, attitudes may have change and travel may not immediately recover.

FINSUM: We think the idea of behaviors changing is quite a valid one. For instance, one of the big worries within the Chinese stock market is that people may not continue to eat at restaurants because of general fears about infection.

(Beijing)

Just when you thought the market’s worries over coronavirus might be in the rear view mirror, more bad news has just struck. The largest single day rise in cases just occurred, with China reporting an additional 15,000 cases in a single day. That rise was more than 10x the previous day’s increase. The country reacted by firing top health officials in the Hubei province, which is the epicenter of the outbreak.

FINSUM: When you combine this information with the growing chatter than China may be drastically under-reporting cases, it makes sense markets are worried. 60m people in China are currently under quarantine. Economic damage is inevitable.

(Washington)

Bernie Sanders’ 2020 bid for the presidency is starting to take on some very familiar patterns. In particular, his campaign is starting to look a lot like his rival Donald Trump’s campaign from 2016. Consider that Bernie is largely a party outsider who has widely been shunned by the Democratic mainstream. On paper his rivals seem more electable, but as they squabble with each other he has built grass roots momentum and taken some of the biggest early election events. Even as he rises, those in his own party worry about his actually winning the bid.

FINSUM: It is eerily familiar. Will it be a similar outcome?

(Washington)

Industry lawyers are checking every day, but nothing is happening. Everyone keeps looking at the DOL’s information portal to see if the agency has posted a new version of its Fiduciary Rule. Many thought the rule would be published by the end of the year, but so far nothing. The reason this is important is that the agency is running out of time to get the rule finalized and in place before the election. Rules that get approved immediately before elections are much more likely, and easier, for successors to undue. Therefore, if the rule does not get approved soon (which is near impossible because of the long approval process the White House has once the DOL proposes it), the rule is at risk of a victorious presidential candidate undoing it.

FINSUM: It seems likely this rule won’t get done until right before the election. If Bernie, or really any Democrat, wins it will likely be undone and the path will be paved for a much tougher rule.

(Washington)

Trump won his impeachment trial and his approval rating is higher than before it. But as we wind towards the election in November, an Achilles heel might be appearing for Trump. That weakness is that many of the states who supported him—indeed those that actually sealed his victory—are actually doing worse economically than they were when they elected him. In other words, the spoils of the current economy have not flowed into much of Trump country. This is especially true across the rust belt states of Ohio, Pennsylvania, Indiana, Wisconsin, Iowa, and Michigan. All of those states can turn Democratic in any presidential year (some are reliably Democratic)—swing states.

FINSUM: This could be Trump’s weakness in the election—that the blue collar boom he references might not have reached enough of the critical part of his base.

(Washington)

There have been many stories about how coronavirus could hurt the economy. We have covered the extent to which fears of the virus have hurt various sectors as well as general Chinese factory production. Today we have some concrete stats on how the virus is hurting trade. So far, there have been about 350,000 less shipping containers leaving China than there would have been without the virus. Dockworkers at major ports are sitting idle as nothing arrives. Fears of job losses are mounting because workers have nothing to do. The 350,000 figure includes China to Americas shipments as well as China to Europe shipments.

FINSUM: That is a phenomenal amount of production if you think about it, and that is only a portion of the export market. We think there is a good chance of a Chinese recession that may trickle into the global economy.

(New York)

There is a lot of focus right now on how great an impact coronavirus will have on the stock market, both locally and abroad. So far it has impacted stocks on certain days, with the effect immediately disappearing soon after. The reality is, however, that coronavirus’ impact may be uneven, with some sectors getting hit badly and others being fine, even as benchmark indexes might seem largely unhurt. We have already written about how luxury retail is hurting because of a lack of Chinese tourists, but now it is looking like commodities might be deeply wounded across the board. China is a huge driver of commodity markets as its demand fuels the market. And with the economy so shut down, commodity demand is going to drop off a cliff.

FINSUM: What is most worrying is that commodity prices don’t seem to reflect this at all, which means they are at risk of plummeting.

(New York)

Every investor is trying to figure out if coronavirus is going to have a major impact on markets this year, or will soon just be a forgotten blip. Goldman Sachs has weighed in on the issue and says investors should not worry much, as coronavirus’ impact will be “limited”. The bank says coronavirus could slow US growth by 0.5 percentage points in the first quarter, but that would easily be made up in Q2 and Q3. According to Goldman, “Investors who believe the economic consequences of the coronavirus will be limited should increase exposure to cyclicals and value stocks”.

FINSUM: We aren’t sure we entirely agree. A lot of this depends on how long the virus keeps China shut down. Growth there is not as great as during SARS in 2003, so this could actually lead to a global recession.

(Beijing)

It is often hard to get a handle on how the Chinese economy is doing. The country’s government controls information very tightly, which makes the whole nation a black box. However, with coronavirus fears in full flourish there is some additional insight available, and it is worrying. Factories across the country have been shut as part of an effort to contain the disease, and even tech workers are working remotely. All over the country, from Beijing to Shanghai, to industrial provinces, workers are not reporting to factories (following government advice to stay home). Even today, as some parts of the country were supposed to return to work, many are not.

FINSUM: The Chinese economy seems to have completely stopped. It is hard to imagine there will not be a significant recession this quarter in China, which could reverberate all over the world.

(New York)

While the stock market had a little blip because of coronavirus, prices are already back to all-time highs. That might be very misguided. The market appears to be discounting the huge effects coronavirus is having on the Chinese economy, which has completely ground to a halt according to some reports. Investors have been complacent about the risk because when SARS happened in 2003, there was a strong v-shaped recovery. However, at that point the Chinese economy was growing at 11%, not at the barely 6% it is today. The global economy itself is only a few tenths of a percentage point off what most would consider a downturn, so things are fragile to begin with. Speaking about the market’s bullish outlook, Stephen Roach, former chief economist and chairman of Morgan Stanley Asia says “This is a market where if you declared it was World War III, they would rally on reconstruction. It’s pretty ludicrous the optimism that is built in”.

FINSUM: If that quote does not hit the nail on the head, we don’t know what does.