US stocks lost have plunged over 10% this week, with the Dow down another 700 points this morning. The mainstream media would have us believe that it is all due to fears over the Coronavirus, even though there are only some 57 reported cases in the US – and most of those are people who traveled to China recently.
While no one can know how bad the Coronavirus will get in the US, there are signs that the virus has peaked in China. While that doesn’t necessarily mean it is peaking in the US, we can look back at previous virus outbreaks in this country and see how the stock markets reacted. I’ll get to that as we go along.
But there is another factor I believe contributed to the violent selloff in stocks this week: Bernie Sanders’ frontrunner status in the Democratic Party. As you know, Bernie is an avowed Socialist and promises to put America on a path to socialism if he is elected. While most polls show a majority of likely voters would not vote for a socialist, Bernie’s dominance in the Democratic Party has a lot of people worried. I believe this played a major role in the debacle in stocks this week. I’ll get to that later, but first let’s talk about the Coronavirus.
Investors had largely ignored the Coronavirus and US stock indexes soared to new record highs last week. But this week is a different story! The Dow and the S&P have plunged over 10% this week (at today’s low), and this correction doesn’t appear to be over yet. Making matters worse, the Centers For Disease Control (CDC) issued dire warnings on Tuesday regarding how bad the virus might get in the US.
So, how have stocks responded in previous virus outbreaks? During the ZIKA virus which occurred in late 2015 and into 2016, the S&P 500 fell by 12.9%. During the SARS virus back in 2003, the S&P 500 fell by 12.8% over a 38-day trading period. There are other examples, but they all passed and the markets recovered and hit new record highs.
Will the same happen this time with the Coronavirus? No one knows, of course, at this point. The World Health Organization (WHO) said this week that Coronavirus is not yet a “true pandemic.” As of Monday of this week, there were just under 81,000 confirmed cases worldwide and just under 2,700 deaths from the Coronavirus, now identified as “COVID-19.”
According to Worldometer, which aggregates statistics from health agencies around the world, total active cases of Coronavirus peaked last week at 58,747 – after subtracting those who have died from the virus and those who have recovered – and have been declining since February 17 which the company believes was the peak.
By comparison, the World Health Organization (WHO) reports that the US has had a total of at least 15 million flu cases in the 2019-2020 season alone. Of that number, 140,000 people required hospitalization, and there were 8,200 deaths so far – the flu season is not over yet.
We are told by the WHO that the death rate from Coronavirus is 2% in China; however, it is reported much less elsewhere at roughly 1%. Fortunately, there is already a drug that is expected to combat COVID-19 moving toward first-phase clinical trials. It took just three months to develop this new drug versus 20 months for SARS back in 2002-03.
For now, it seems the Coronavirus has peaked, but it is still too early to say for sure.
Finally, there is the question of how much the success of Senator Bernie Sanders in the Democratic primaries has influenced the sharp decline in US equities this week. To my knowledge, there is no way to accurately predict this. However, the Nevada caucuses were held last Saturday, and Bernie was the big winner (26.6%), following earlier wins in Iowa and New Hampshire.
Stocks imploded over 1,000 points in the Dow on Monday and the Dow and S&P have fallen by over 10% at today’s lows. Is there a Bernie connection? I say, definitely! And I’m not the only one – others agree.
Fortunately, a Gallup poll released on February 11 found that 53% of Americans would NOT vote for a socialist. The same poll found that Americans would overwhelmingly vote for a woman, a black or a Hispanic for president – just not a socialist.
In the Democratic debate on Tuesday night, all of the other candidates were gunning for Bernie. I don’t get the impression they are all that concerned over Bernie’s socialist policies, but rather fear that President Trump would steamroll him in the general election.
It will be very interesting to see what happens in the South Carolina primary on Saturday and on Super Tuesday next week! If Bernie somehow wins South Carolina and does reasonably well on Super Tuesday, we could see more wild markets next week – if my theory is correct. We’ll see.
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