Stocks Up as Coronavirus Fears Calm

February 12, 2020

Last week, U.S. equities returned to new highs even as the Coronavirus continues to spread, confounding the scared bulls and foiling the bears who were finally licking their lips in anticipation of a downturn in the market. The previous week, the outbreak news helped push the stock market down almost 4% at one point. According to CBS, the death toll from the virus was at least 638 as of Thursday evening, all but two, however, in mainland China. That’s probably the key to understanding why the market has so far not reacted too badly. More than 31,000 people have been infected worldwide, again with the vast majority of them in China.   

Frame 2

The technical picture remains strong for U.S. equities. The HCM BuyLine® is strong and any pullback should be seen as a buying opportunity. The NYSE Advance/Decline line is at highs. Last Monday’s rally saw net 1,000 stocks up, and Tuesday a net 1600. It’s hard for bears to argue against this. And while there’s rogue talk of euphoria, this is the reason we trade math with no emotion tied to our trading. The markets could trade higher for some time to come, or end tomorrow, either way we have a plan to adjust as needed. The market will be euphoric when we see lots of stocks act like Tesla (TSLA). 

SP 500_LI

  • The OECD U.S. Composite Leading Indicator (CLI) shot up 0.2 points in December to 99.2, an eight-month high, indicating some strengthening in economic activity at yearend.
  • This was the fourth straight increase in the CLI and by the most since January 2012. But the index is still below 100, as growth remains short of its longer-run trend.
  • Following a strong Employment Report last Friday, the Employment Trends Index (ETI) rebounded 1.3% in January, the most in six months, and was up 0.7% from a year ago.
  • Seven of its eight components made positive contributions, led by initial jobless claims which continue to hover near their lowest level since 1969.
  • The ETI suggests that nonfarm payrolls will continue to increase in the months ahead, despite historically tight labor market conditions. It is also consistent with a modest uptick in real GDP growth in early 2020. 

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