The biggest (recurring) Reality Gap this week:
Apologies for sounding like a broken record, but China’s coronavirus outbreak is still the biggest market-moving story.
As I said last week, the number of new cases and deaths is slowing down. This is still true, with transmission even slower, despite the News Media hyping up every new case.
This slowing down in the transmission rate is why markets did so well last week.
JPMorgan Chase & Co. (JPM) agrees, and two days after I sent you my chart on the slowing spread of the virus, they sent a very similar one to their clients.
But this week I’ll be very cautiously bullish, as there is some potential for the spread of the virus to accelerate again, and market participants are limiting their exposure to this risk ahead of time.
After the Lunar New Year holiday period was extended, with stores closed and time off work to help slow the spread of the virus, Chinese factories are set to begin reopening this week.
For example, Apple Inc.’s (AAPL) key supplier of iPhone parts, Foxconn, has received permission to restart one of its factories in China. However, so far only 10% of the factory’s workers have been able to return.
People returning to work in the next seven to ten days could set off a new wave of human-to-human transmission of the virus.
The Chinese government and traders both will be on the lookout for any signs this happens. Overall, I remain bullish moving forward, but stay cautious this week, until it’s clear that the virus doesn’t re-accelerate at a pace that requires new quarantines.
The one earnings I have my eye on is Alibaba (BABA) – they are likely to give a good picture of how they expect the coronavirus to impact their online retail business, which is the biggest in China.
Great trading and God bless you,
D.R. Barton, Jr.