China is attempting to restart its economy after an extended closing due to the coronavirus. While some companies such as Foxconn, which supplies Apple (AAPL) , have been certified to reopen, others like Alibaba (BABA) , have extended the break to February 16. Stories of the impact on a wide variety of industries such as apparel, fashion, and technology are prominent.
Despite the continued uncertainty and the great likelihood of economic impact from the coronavirus, U.S. indices still refuse to react very much. Early indications are for a slightly negative open, but the major indices are all very close to all-time highs and do not reflect any real fear or worry.
What is particularly puzzling about the market strength is that there are so many questions about the coronavirus data that is coming out of China. There are widespread rumors that the situation is much worse than reported, but the spread outside of China seems to indicate that containment is working.
The market's resilience in the face of such an ugly threat has many market players trying to find ways to reconcile the movement with the news flow. The most common theme is that central banks are pouring liquidity into the economy and that cash has few places to go into equities. There is obviously going to be economic fallout from the coronavirus, but the market is acting like the monetary stimulus will more than offset the fallout.
Perhaps the economic impact will hit the market at a later point, but for now the price action simply is not reflecting that potential. There is little choice but to stay very vigilant and watch the price action carefully for indications that sentiment is shifting.
Earnings season is winding down quickly with many small-cap stocks reporting this week. Other than that, there are not many catalysts on the schedule. The impeachment drama is over, the China trade deal is no longer in the headlines and the market isn't reacting to the Democratic primary battle. The market's reaction to the rise of Bernie Sanders is to assume that it increases the chances that Donald Trump will win reelection, which is widely viewed as a stock market positive.
While it is tempting to make a big market prediction, the smart strategy is to wait for the market action to shift character before making any significant moves. I plan to monitor positions carefully, look for some positive technical action to buy and not try very hard to time the indices.