Never thought I would have to pay so much attention to cdc.gov. That's the official website of the agency that's trying to stop the coronavirus in the U.S., and it's a chief reason why we could rally so hard today.
We don't really know what will happen with the coronavirus that's coursing through China and spreading worldwide.
But the CDC is getting its arms around it and slowing it down, helped by a president who has basically banned foreign nationals from China here, and the result is that the number of people who have come down with the virus here has not grown the way that you would have thought, judging by what's happening in Wuhan.
Now, I don't want to over-summarize what the CDC is saying, but let's put it like this: This illness is a medical crisis in China, and it's become a public health crisis in this country. That means it can be managed and handled. When you don't have a vaccine and you don't have a cure, you have to use a quarantine, and it's so far so good for the quarantine. Yes, you see a lot more people walking around with masks and a lot more carrying Purell (I don't know about you but it dries up my hands) and people have Clorox (CLX) wipes literally at their fingertips, something that's not even in the Clorox numbers that drove the stock higher Tuesday.
The odd thing about all of this is the level of certainty both intrigues me and repulses me. The idea that the Centers for Disease Control and Prevention could address this illness last week and now believe that the national quarantines are working and the test is adequate makes me feel that we are almost being played. The CDC is still giving us very little certainty about everything from detection to prevention. Scared out of our wits Friday, so we go down 600 Dow points, confident as all get out Tuesday where we go up 450 points and that's all she wrote?
I know a lot of people feel that way. And a lot of of people feel that you just have to look through the valley of the shadow of the coronavirus and imagine that all's good and it's time to take stocks up to new highs.
I have my reservations.
First, we may think that China is back on line and that their factories are going to hum again soon -- that after their holiday is over the place will be all better. That's why a lot of stocks like that of Apple (AAPL) are running so hard. I think there is a false sense of security. The situation hasn't been improved in China. In fact, the CDC confirms that. The infections and the death toll will climb.
But the CDC gave us insight that the fatalities tend to be clustered around those who are older and have preexisting health conditions. You can get it from Chinese individuals who have been exposed, there is no doubt, which actually makes me wonder about the trade delegation that came to Washington for the signing of phase one of the trade deal on Jan. 15, or the Chinese crew who attended Davos a week after. The Chinese government knew about the virility of the illness more than a month ago, yet these delegations were greeted warmly by all sorts of politicians, business people and journalists whom, I am sure, if they have the flu, must be wondering what kind they have.
Second, I think the monstrous amount of stimulus the Chinese government is injecting into the system -- something akin to $300 billion in the last 24 hours -- is really masking how horrible things are over there. That stimulus is injecting a strain of positivity worldwide and markets are benefiting. I think it is also helping to relieve the tightness in our bond market, sending yields higher, which would cause you to think the flight to quality trade is over and things are more stable than last Friday.
But let's not for a minute believe that the Chinese economy isn't slowing down, given the illnesses and the quarantines and the fear of going out. I would use this rosy moment to reposition and do some selling of stocks that are too levered to Chinese consumer traveling, which I think is going to be the worst hit.
Third, the earnings themselves have been really terrific this week so when you take the virus off the table -- whether it can be washed off effectively or not -- you are getting quite a solid picture of the U.S. economy and the tech companies that represent the real engines of the stock market. I know that Alphabet (GOOGL) reported last night and I am getting the feeling that people feel that it was the only stinker. To me it's the opportunity I have been waiting for, with the company finally breaking out its cloud and YouTube numbers, which will only get better and better. It was down big, but if you net out Monday and Tuesday, you still finished up big.
The cloud kings are particularly hot, and there's no real reason for the strength, which, again, I find unnerving. Nothing's happened to propel them other than there's been a sensation of initial public offerings, which has historically brought money to the group.
My charitable trust, which you can follow at the Action Alerts PLUS club is still schnitzeling, meaning peeling off some of the higher flyers. We just need room to buy when the inevitable decline occurs on further outbreaks in the U.S. or even, perhaps a fatality. Fair warning: I hold monthly club calls, and I am doing one Thursday at 11:30 a.m. and the market's gotten clobbered almost every single time while I am holding the call.
Fourth, we are hearing a great deal of chatter about how there are many smaller biotech companies hard at work and closing in on both cures and vaccines. If the infection toll remains low, and the disease is slowed down, it raises the odds that something worthwhile pans out. The prospects for discovery are much better than they were during previous epidemics, because we have the genome of the darned thing. I remain hopeful.
Next, the illness is beginning to be thought of as something that can be managed and can't overwhelm our system. What's odd is that almost every market worldwide increased a great deal, even as only a few countries seem capable of actually treating the coronavirus as a public health matter. That's why I found it surprising that so many industrials with exposure to China could rally so hard. There has to be an awful lot that goes right to think that China can regain that 1% of gross domestic product that I think the illness is lopping off and the ripple seems at odds with the dramatic rallies worldwide. It's possible, of course, that some of it just happens to be short-covering, particularly in our market as the CDC's downbeat stance last Friday surely brought out the short selling hedge funds. The buying and short-covering, for example..
Finally, while the world's markets were higher, I think that at least some of the strength here is related to the status of President Donald Trump. Hate him or like him he is, empirically, great for the stock market. The disarray of the Iowa caucuses and the coming and of the Democrats' unsuccessful impeachment bid, might be giving the market an extra spur.
We talk about relief rallies. Tuesday seemed like a genuine relief rally -- meaning one that caused to be relieved that we will make it through this epidemic intact, or at least much better than we thought just a few short days ago.