New Definition Increases Coronavirus Cases

Coronavirus Looms Again

With its 0.65% rally on Wednesday, the S&P 500 is now on a 3 day winning streak and has increased in 6 of the past 7 days. However, an updated news report on the coronavirus this evening threatens to ruin the party in stocks. Because of the new way China is measuring confirmed cases, on February 12^th there were an additional 14,840 cases, bringing the total up to 48,206. The change was to add “clinically diagnosed” cases (13,332 of the new cases were in this category). There were also 242 new deaths which brought the total up to 1,310.

If the results would have been calculated the same way, there would have been a continuation of the decline in new cases as the chart above shows. This update ruined the bull narrative that the virus’ growth rate is dying down quickly. The situation will get under control this spring and economic activity will resume as normal later this year. But normalcy was delayed a bit by this update. It also calls into question current data. Some investors are waiting for another shoe to drop which tells us the virus is even worse than we thought.

The graphic below shows the Chinese government’s efforts to normalize economic activity in the wake of this black swan event. Those efforts won’t prevent very weak Q1 GDP growth, but this weakness should pass quickly. That expectation explains the Shanghai Composite’s 7 day winning streak in which it gained 6.56%. It was down modestly in the wake of this latest news. I expect the S&P 500 to fall modestly on Thursday as well.

Review Of Wednesday’s Action

Nasdaq was up 0.9% and the Russell 2000 was up 0.71%. That’s 2 straight days the Russell 2000 outperformed the big caps. That’s good performance considering that the 10 year yield is stuck at 1.6% (it closed at 1.63% on Wednesday). At least the bank heavy index doesn’t need to deal with an inverted yield curve as the 2 year yield is down to 1.42%. Chance of a rate cut this year has risen to 81%. Economic growth acceleration this year will be supported by this rate cut that will likely occur in the 2^nd half of the year.

With this recent run, the S&P 500 is now up 4.6% year to date. It’s already above my initial full year price target and it’s not far away from my latest 7% gain projection that I made this month. There’s not much that can stop this market if we assume the 2020 election will go fine and the coronavirus will be eliminated. It's surprising that stocks are so sure Bernie Sanders won’t win the election. 

S&P 500’s fear and greed index increased 4 points to 60 which is greed. It might fall back to neutral on Thursday. As you can see from the chart below, E-Trade’s DARTs index has recently spiked. DART stands for daily average revenue trades. It represents retail activity. Retail traders love Tesla, which has finally settled down after spiking above $900. That’s good news for Tesla because it could have easily crashed after spiking to an unsustainable valuation.

Energy was once again a big winner as it rose 1.36% which was the most out of any sector. 2^nd best was technology which was up 1.06%. Only down sector was consumer staples. Altria was down 0.37%. After rallying 28.48% from October to December, its stock has fallen 11.93% from its peak; it has a 7.4% dividend. Its acquisition of Juul was a disaster. Even so, I think it’s a buy as it approaches the low it made last fall.  

Democratic Primary Update

Alabama Senate primary polls show the GOP is very likely to take that seat back from the Dems this fall. That will be one less seat for the Democrats to work with as they try to regain the Senate. Even if Bernie Sanders becomes president, it’s unlikely he’ll get everything he wants done. Republicans and moderate Dems disagree with his approach. Good news for the Democrats is that the latest generic congressional polls showed them up by 4 and 8 points. Top of the ticket, which is the presidency will strongly impact the congressional races.

There were 2 new Democratic primary polls. Latest national poll showed Sanders up by 4 points over Biden. Sanders leads the recent average of polls by 4.4%. Because he is the most popular, I find it tough to believe if he doesn’t win over 50% of the delegates that the DNC will choose a lesser candidate. 

Bloomberg, who is considered to be the one that will be picked, only had 12% in this poll. He still needs one more national poll with a 10% or higher reading by February 18^th to make the debate next Wednesday. I’m very sure he will get that last poll because he averages 14.2%. Another poll was from North Carolina which showed Biden ahead of Sanders by 4 points (who was 4 points ahead of Bloomberg).

PredictIt shows Sanders’ odds have slipped sharply and Bloomberg’s odds have risen a lot. Now Sanders is only at 44% and Bloomberg is at 31%. This is music to the ears of the stock market and health insurance firms. IHF health insurance index rose 2.15% on Wednesday to a new record high. 

There is a 72% Bernie wins the next race which is the Nevada caucus. And there is a 56% chance Donald Trump wins re-election. Finally, there is a 46% chance the Dems have a brokered convention. That's the most likely way Bloomberg wins.

Looking at 538’s data, there is only a 37% chance Sanders wins over half of the delegates which is down a few percentage points since the New Hampshire primary. “No one” winning more than half now has 36% odds. 

Sanders has a 53% chance of winning the plurality of delegates. Many in the betting market assume if Sanders doesn’t win a majority, the DNC will pick a moderate Democrat like Bloomberg.