Coronavirus Conundrums Cause Cognoscenti Conversations

Coronavirus Conundrums Cause Cognoscenti Conversations

almost 4 years ago2 mins

After initially shrugging off the coronavirus outbreak, investors woke up to the potential for pandemic and ditched riskier assets this week – sending stocks to a resounding two-day slide on Monday and Tuesday. As everyone asks what’s next, here’s a wrap of the latest opinions.

A tough few days (Source: Bloomberg)
A tough few days (Source: Bloomberg)

What are the bulls saying?

Among the optimists is Invesco, who point out that, “it would be rare, if not unprecedented, for an infectious disease outbreak to lead to a global economic recession.”

The money manager also flags the historically relaxed financial conditions – a measure of how free people and businesses are to spend, based on interest rates, currency movements, stock market valuations, and credit spreads.

Article Image

Private bank Coutts agrees that you should avoid panicking. “This is not the first health crisis that financial markets have endured,” it wrote on Tuesday. “Investors shouldn’t overreact to the often distressing news headlines.”

Indeed, the stock market slide, particularly in the US, “has a whiff of panic about it,” research firm TS Lombard said on a conference call on Wednesday. “There is upside as well as downside. We don’t think the market is excessively overpriced at this point.”

How about the bears?

Whenever there’s a sell off, market bears will get more attention.

Article Image

Here comes Nouriel Roubini with his prediction in a Financial Times column that, “despite this week’s big sell-off in equity markets, the worst is yet to come.” 😨

While the Federal Reserve will probably trim interest rates to support the economy and markets, they’re already so low there’s only scope for 1.5 percentage points of cuts, Roubini reckons.

“Expect a temporary positive market reaction when central banks signal an accommodative response to the global pandemic. But this reaction will fizzle out when the virus becomes more severe and the economic impact spreads globally.”

Others point to the yields on different durations of US government bonds – known as the Treasury yield curve – for warning signs. Richard Bernstein Advisors flags how flat this curve is now (in red) compared with when the bull market began in March 2009 (in green).

Flat out (Source: RBA, Bloomberg)
Flat out (Source: RBA, Bloomberg)

“History strongly suggests it is imprudent to get more bullish when the yield curve is flat or inverted.” RBA wrote. “Rather, the curve has been a reliable signal to gradually calm down.”

What do you think? Apply to chat with fellow Finimizers in our Premium Groups.

Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG