The market has been obsessed with China’s coronavirus outbreak for weeks now.
Every little development, from another quarantine measure to a new isolated case found outside China, has sent stocks into a flurry of activity.
However, despite the News Media hyping up this outbreak like the end of the world, the data we had showed a different story.
The outbreak seemed mostly contained to its source in China’s central Hubei province. Most cases, and all but three deaths, occurred there. And the vast majority of cases outside of China were Chinese nationals who had recently left Hubei.
This was a Reality Gap where the market was reacting to its own fears, while the data suggested most of those fears were misplaced.
Many market participants were aligned with my analysis and we saw the market continually rebound after negative news pushed markets down temporarily.
This analysis allowed us to see rebounds coming after initial processing of the coronavirus data and handed subscribers to my premium services six 100% gains in the last two weeks.
But new uncertainty about the legitimacy and accuracy of the calming data that was coming out of China has changed all this.
To determine what the Reality Gap is, I always follow the data.
And over the weekend, it became very clear that the “data” China – and even the World Health Organization – has been putting out is in serious question.
And so, I have to updated my short and intermediate-term analysis of the impact of the outbreak on the financial markets.
And we need to adjust how we trade accordingly.
This Virus Is Not a Health Concern for You (If You’re Outside the Epicenter)
That’s not to say that the end of the world is coming.
Let’s be clear: it’s not.
Covid-19, as this strain of coronavirus is now officially called, is still not a threat to your health here in the U.S.
To this day, the largest cluster of cases outside of China is on the cruise ship Diamond Princess, currently docked and under quarantine in Japan. Chinese passengers aboard appear to have infected parts of the crew and other passengers, partly due to woefully inadequate quarantine measures taken by Japanese authorities.
And the number of new infections outside Hubei has been falling for almost two weeks now.
In other words, unless you’re on that cruise ship or are travelling to Hubei, you have almost no chance to contract the virus.
So there’s still no reason to worry about your health.
But Covid-19 has changed my medium-term outlook on the market and economy.
I’m now much more cautious.