Don't Do the Coronavirus Chase

A little government and a little luck are necessary in life, but only a fool trusts either of them. - P.J. O'Rourke Panic continues to set in across the globe over the spread of the coronavirus. Although the death toll in the United States remains below 25, extraordinary measures are being implemented that are going to produce a significant, but hopefully temporary, negative impact on economic activity. Companies continue to cancel planned conferences and meetings that require travel. Even the big South by Southwest event has been trashed for this year. And more people are working at home as social distancing becomes a new catchphrase. It is going to be a brutal start of a new trading week here on Monday. The oil market has collapsed with Brent crude below $30 a barrel now. Worries about demand falling off a cliff thanks to Covid-19 have combined with the Saudis deciding now would be a good time to launch an oil price war by slashing official prices Saturday by the most in at least 20 years and signaling they would maximize output in a spat with Russia. S&P futures fell more than 5% in the overnight session and tripped the limit-down rule. It's the first time that has happened since the surprise election of Donald Trump in November 2016. Ironically, equities ended up that day and the election results wound up triggering a big rally in the markets. Unfortunately, I don't see that outcome playing out in this scenario. The market seems to want to go into full panic mode with the 10-year Treasury yield diving below one-half percent in the overnight session. The death toll in the United States remains very low, but confirmed cases are spreading. I continue to believe in the end this outbreak will start to fade as warmer temperatures and higher humidity takes hold later in spring and in summer, much like the SARS coronavirus in 2002. However, until investors have confidence this novel coronavirus is contained, it is going to be a rocky road for equities and it is hard to see any way we avoid a bear market at this point. The economic impact continues to increase as what I think is mass hysteria spreads worldwide. My hope is that demand bounces back nicely when the outbreak is contained. However, it is really tough to assess what kind of non-temporary economic damage this event will produce or what measures the government will undertake to counteract it. My game plan remains the same as it has been since the start of this big down leg in the market. I will continue to put new money to work incrementally via buy-write orders for selected stocks and ETFs. I also won't be chasing any coronavirus plays. These include the small vaccine and testing concerns. Vaccines are not that lucrative even as they are hard to develop. Small vaccine makers such as Inovio Pharmaceuticals seem to rally every time we have a major virus outbreak and then fade as soon as the new crisis fades. In the interim, these companies are adept at diluting shareholders by raising capital. This spike in Covid-19 cases is going to require a huge amount of testing, but that demand is likely to be temporary and it is hard to justify the huge move in a name such as Co-Diagnostics Inc. on a longer-term basis. In the meantime, I am going to hope that preliminary data from Gilead Sciences' Remdesivir in combating the effects of this new coronavirus are positive when they come out shortly. The drug has shown strong in-vitro results against other coronaviruses such as MERS and SARS. The compound is undergoing tests in China. That preliminary data should be out late this month. Positive data could buoy the markets substantially. While not a vaccine, knowing there is a way to address the symptoms of the disease would greatly ease the panic in the populace. Outside of that I plan to keep calm and wash my hands frequently with good old-fashioned soap, which does a great job breaking down a virus and is something everyone should be doing right now. I also will look to book airline tickets at deeply discounted prices for trips to Europe in late spring and summer as I continue to believe things will be settled down by then. Finally, if I had a mortgage, I would be refinancing it at these historically low mortgage rates. Mortgage refinancings have spiked over the past couple months and this is going to constitute a lot of consumer discretionary money for homeowners in the quarters ahead. But that is a topic for a column in the future.

Don't Do the Coronavirus Chase

There are small vaccine and testing companies that see their shares spike when a new virus hits, but whether those gains will last is questionable.

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