Will Coronavirus Cause a 20% Pullback in S&P 500?

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Will Coronavirus Cause a 20% Pullback in S&P 500?

Investors have plenty of things to worry about in 2020.

That includes:

  • US presidential election.
  • Slower global economic growth.
  • High stock valuations after big gains in 2019.

Now I see a new threat – a global pandemic with the potential to kill millions of people and crush the global economy.

Corona virus (Covid 19) has been all over the news for the last month. For anyone who has been living in a cave, Covid 19 is a highly contagious and potentially deadly virus that is wreaking havoc on human beings and the global economy.

The Covid story is loaded with highly questionable government data, a quickly growing death toll and conspiracy theories that look more like reality every day.

Best case scenario:  Covid 19 is an aggressive form of the flu.

Worst-case scenario: This is a man-made bio weapon with the ability to end human civilization within a few years.

Today I am going to reveal:

  • My view on Covid 19 and what is happening on the ground.
  • Its effect on the global economy and global stocks.
  • How to navigate market volatility.

According to the Chinese government Covid 19 originated in Wuhan, China at a live animal market back in December of 2019.

  • 76,000 cases have been reported and around 2,000 people have died.
  • Mortality rates are around 2%.
  • Covid is transmitted through close personal contact.

That’s the official narrative from the Chinese government and other global health agencies. Here’s the unofficial narrative from the ‘conspiracy theorists.’

Covid 19 is a man made bio weapon that accidentally escaped from a deadly bio weapons lab in Wuhan China.

  • Millions are already infected.
  • Hundreds of thousands have died.
  • Billions could be infected, millions will die.
  • Mortality rate more like 15% – 20%.
  • Experts do not know how it is transmitted.

Millions infected and hundreds of hundreds of thousands dead? That probably sounds pretty crazy, right?

Maybe not. Ignore what people say and pay close attention to what they do. That’s where you see the truth.

There is evidence on the ground that China and the global elites know this is much more than just an aggressive form of the flu.

Here are a few things to consider.

750 million people in China are living under some kind of quarantine: China has a population of 1.3 billion. According to multiple news outlets, around 750 million people in China are living under some form of quarantine. Some of the largest cities in China have ground to a halt. Economic activity has plunged.

China’s Lunar New Year travel plunges 50% to 20-year low

Adidas’ China business plunges 85% amid coronavirus outbreak

Would China have various forms of quarantine on half the country if Covid 19 was ‘just an aggressive flu?” My guess is probably not. The result of the quarantine – millions of employees are not working and millions of consumers are not spending.

The Covid numbers out of China don’t add up: Experts in data collection and analysis agree that the Covid data coming out of China doesn’t add up. Here are some more details from the Washington Post.

For the third time in eight days — and the second time in 24 hours — Chinese public health officials made changes Friday to their criteria for counting coronavirus cases, once again sowing confusion over the widely fluctuating figures. In a further sign of potential inconsistencies, an official in China’s Hubei Health Commission suggested that agencies were not being transparent and accurate in their reported case numbers.

China is silencing critics – AKA – killing or jailing them: Evidence suggests that China is silencing citizens who deviate from the official, state narrative on Covid. Here are some more details from BBC.

“They posted videos online, shared pictures and dramatic stories from inside the quarantined city that has been virtually cut off from the rest of the country.

Now, they are nowhere to be found.

Fang Bin and Chen Qiushi were both determined to share what they could about the crisis, reporting from Wuhan, the capital of Hubei province, and sending what they found out into the world.

As a result, they racked up thousands of views on their videos. But their channels have now gone quiet, and those who followed them online fear they may have disappeared for good.”

Wuhan, China is home to the deadliest bio weapons labs in China: Wuhan, China, where the Covid 19 outbreak started, just happens to be home to the deadliest bio weapons lab in China. Here’s what the Washington Times said.

Radio Free Asia last week rebroadcast a Wuhan television report from 2015 showing China’s most advanced virus research laboratory, known the Wuhan Institute of Virology. The laboratory is the only declared site in China capable of working with deadly viruses.

Dany Shoham, a former Israeli military intelligence officer who has studied Chinese biological warfare, said the institute is linked to Beijing’s covert bio-weapons program.

Starbucks, Apple and McDonald’s temporarily closing operations in China: American companies are temporarily shuttering business in China. For example, China is Starbucks second largest market outside of the US with 4,300 locations. On January 29 Starbucks announced it was shutting down 2,000 stores in China. Apple did the same, shuttering business in China and last week Apple reported that fourth-quarter revenue will be impacted. I’ve never seen companies like Apple and Starbucks shutter operations in China over ‘an aggressive form of the flu.”

China Grinds to a Halt and Global Supply Chain at Risk

Regardless of what is really happening on the ground, the impact of Corona virus Covid 19 on the global economy is already very real. Half of China looks like a ghost town.

  • Economic activity is plummeting in China.
  • Millions of employees are not working.
  • Millions of consumers are no longer spending.
  • American companies are shuttering.
  • The global supply chain is being disrupted.

And meanwhile – stocks have barely noticed. The S&P 500 is fresh off another new all-time high. Love seeing that – but stocks are priced for perfection right now and that’s a problem with Corona virus raging across the planet. Here’s a 12-month chart on the S&P 500 and NASDAQ 100.

*Chart from tradingview.com.

Here’s My Prediction for Covid

My opinion – this is not ‘just the flu’ but I also don’t believe this is the end of humanity.

I expect Covid to continue spreading across the planet. I expect millions of new cases and I see deaths reaching a few hundred thousand.

I think Covid has already had a material impact on global economic growth and I expect that to continue for at least a few months as we move into spring and summer. I don’t see a US or global recession – not yet at least.

Here’s my Prediction for Stocks

I think stocks are grossly under estimating the threat. With the stock market its all about earnings and earnings growth. I believe both have already been negatively impacted. And I expect Covid to be a strong headwind on global stocks for the next few months.

Global stocks are coming off a great year in 2019 – prices are way up and valuations are high in the short and long run.

I don’t expect a stock market crash – but I can easily see a 5% to 10% pullback in stocks in the next few weeks or months.

Here’s the Plan Moving Forward

For younger, long-term investors: Sit tight and ride out the volatility. Use any weakness to send cash into the market.

For older, short-term investors: Any cash you need in the next 3-5 years should not be in stocks. If you have cash in stocks that you don’t need in the next 3-5 years, sit tight and ride out the volatility. If you need the cash, think about taking profit. The S&P 500 is near an all-time high.

This is a dynamic story and I will be watching closely and keeping all of my clients updated.

I’ll be back next week with another update.

In the meantime – forget about the pending doom of the human race and enjoy your weekend!

Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.

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