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Allen's Analysis Blog

Weekly Market Comment

January 31st, 2020

“Buy bonds, fight communism!” – Mario Addeo, our Raymond James colleague and dear friend who passed away last night

The TSX Composite lost 1.4% as the TSX shed 2.1%.

It’s easy to dismiss the latest form of coronavirus as something only for other people in far off places can catch. Despite an eyebrow-lifting headline “Virus-hit Wuhan has two laboratories linked to Chinese bio-warfare program, a study published in the Lancet shows that the outbreak started at an outdoor food market in Wuhan selling wild animals such as wolves and badgers. The lack of food standards in China is once again shown to be a risk to the world.

What’s notable is how rapidly the sickness spreads, having surpassed the official number of SARS cases (also a type of coronavirus). It helps explain China’s unprecedented move of quarantine a city more populous than New York City. Especially hurt have been airlines, travel and gaming stocks. It is worth noting that almost half the fatalities to date were 80 years old or older while children who have been infected have been a lot more resilient to the virus. According to estimates, the virus kills about 3% of those infected which suggests it is less deadly at this point than SARS which killed an estimated 10% of infected people.

But, as the chart below shows, stock prices have typically bottomed by the time the WHO gets around to making such a declaration. They did this on Thursday. The good news is that it appears that China has been more forthcoming to disclose this virus relative to the SARS outbreak and take faster action.

Market falls before WHO announcements chart

Our guess is that the worst of this global scare will get worse before it gets better. Exogenous events tend to capture the imagination but lack staying power. Nevertheless, in late trading today, stocks sold off due to growing worries of global economic growth being hurt. The good news is that technology companies like Apple and Amazon reported extremely strong numbers this week. American economic growth in the 4th quarter was a respectable 2.1%.

In terms of investing, as everyone rushes to buy winter tires (so to speak), we’ll be watching out for steep discounts on summer tires.

Notable reads:

Musings Beyond the Market

So far, the coronavirus has affected almost 10,000 people and killed over 200. But at this point, it remains exceedingly unlikely that a person in Canada gets infected, especially if they didn’t visit Wuhan. But that doesn’t mean that taking extra care to wash your hands and keep some supplies in storage is a bad idea.

If you are going to buy a safety mask, make sure it is an N95-approved one (Home Depot and Canadian Tire sell them). These masks are also useful in filtering forest fire smoke so they are not a bad thing to have sitting in your storage room. I bought these masks during those awful forest fires but I also wore one to the hospital when I realized I had contracted pneumonia, not for my protection but out of consideration for the cab driver and hospital staff. These masks have their uses.

3M Mask

(homedepot.ca)

Word of the Week

sweater (n.) – an warm item of clothing that your parents used to make you wear when they were feeling cold. “I have too much money invested in sweaters.” – Bob Hope