24 Feb 2020

Hello reader!

The fear of Coronavirus has infected the stock market.

The market's patience completely ran out today as the news on Coronavirus, which has continued to weigh heavily on the negative side, sent the market reeling. What alarmed the market was the spike in new patients in altogether new locations as the disease reached Italy in Europe and Iran in the Middle-East, beginning its rise to a potential global pandemic. Perhaps what was lost in the panic was the report from WHO that the infection rate has peaked in China and is now leveling-off. This can change, but for now, it's a sliver of positive news in a healthcare crisis that has not seen many positives thus far. While new countries are facing the crisis, if the disease rate in China now begins to reverse itself or decelerate, it can begin the process of unblocking choked supply lines for the world. China is a very meaningful cog in the global trade wheel and any progress there will be a positive.

After a very robust earnings season provided the market with strong support, the next best thing for the market now would be an indication by the Federal Reserve that it stands ready to support economic growth in the event of global trade disruption or if the virus makes broad inroads into the U.S. The situation reminds us of the US-China trade war when we had mentioned that the upside on trade war will be a Fed rate cut. The coronavirus can get the Fed to shift its posture to a more benign one from what it was just last week when the Vice-Chairman seemed reluctant to offer any hope for a rate cut this year. Any news of a change in the Federal Reserve posture will be a major positive.

Healthcare, including biotechs, were punished today, but not any more so than the broader market. In many ways, healthcare can turn out to be a defensive sector in the viral outbreak. However, the election-related risk remains but at this time it is not the primary concern.

Of course, these are uncertain times. In times of high volatility, it is common for sharp declines to be also accompanied by sharp rallies. While there has been a preponderance of negative news on the viral outbreak, any positive health news can go a long way in shoring-up market confidence. We are not making any portfolio adjustments today but will continue to monitor the market reaction closely.

For any questions, kindly contact us at support@GraycellAdvisors.com.

Sincerely,
Graycell Advisors

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