Coronavirus Digest

The Kelly Letter Coronavirus Digest

  1. Rate of Virus Spread is Slowing | China's new case report is at its lowest since January 20. America's spending package is bigger than expected.
  2. Economic Impact | The OECD sees risk of global recession. China's manufacturing has collapsed. At least pollution is down.
  3. Portfolio Status | Yesterday's strong rebound in the stock market weakened our buy signals. Stimulus expectations took credit.


1. Rate of Virus Spread is Slowing

New infections are ticking higher rather than leaping higher. As of early this morning, 88% of worldwide cases and 94% of deaths were in China.

+ WHO: Chinese hospitals overflowing with COVID-19 patients a few weeks ago now have empty beds. Trials of experimental drugs are having difficulty enrolling enough eligible patients. And the number of new cases reported each day has plummeted the past few weeks.

“China’s bold approach to contain the rapid spread of this new respiratory pathogen has changed the course of a rapidly escalating and deadly epidemic. This decline in COVID-19 cases across China is real.” China’s successes so far should give other countries confidence that they can get a jump on COVID-19.

+ NYT: China recorded 125 confirmed infections of the coronavirus and 31 deaths in the previous 24 hours. It is the lowest number of officially confirmed infections since January 20, when China’s leader, Xi Jinping, issued his first public orders on the epidemic.

+ March 1 Kelly Letter: Bill Bishop at Sinocism suggests we need to see three unmistakable signs in order to believe that the Communist Party thinks victory really is at hand:

1. Xi visits Wuhan.
2. A date is announced for the “two sessions.”
3. Kids return to school.

Current status of the three signs:

1. No
2. No
3. No

The two sessions are significant markers on China’s carefully choreographed political stage. They are the annual meetings of the national legislature and the top political advisory body, which happen in early March every year. They were both postponed indefinitely this year due to the virus.

As for the kids, Bishop wrote on February 26 that “the political risk of sending kids into harm’s way is too high. And until it is safe for kids to go back to school it is hard to see the economy operating at anywhere near normal levels.” The next day Premier Li Keqiang said, “Universities, middle and primary schools, and kindergartens should continue to postpone the coming term.” Recovery remains on hold.

+ WAPO: American lawmakers are closing in on a $7.5B coronavirus emergency spending package, much bigger than the $1.25B requested by the White House. Most of the package will consist of bulked-up funding for the Department of Health and Human Services, which houses the Centers for Disease Control and Prevention and the National Institutes of Health.

+ MIT Tech Review: We are not out of the woods yet. Hawaii’s health department advised people to have two weeks’ worth of emergency supplies at home. Topping the coronavirus prepper’s shopping list: a month’s worth of shelf-stable food, medications, paper towels and other dry goods, disinfectants, reading material.

2. Economic Impact

The OECD said it expects global output to fall this quarter due to the virus, posing risk of recession. In its best-case scenario, the global economy would grow 2.4% this year, down from 2.9% last year, then rebound next year. From the report:

“Relative to similar episodes in the past, such as the SARS outbreak in 2003, the global economy has become substantially more interconnected, and China plays a far greater role in global output, trade, tourism and commodity markets. This magnifies the economic spillovers to other countries from an adverse shock in China. Even if the peak of the outbreak proves short-lived, with a gradual recovery in output and demand over the next few months, it will still exert a substantial drag on global growth in 2020.”

+ CNBC: On Monday, the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) came in at 40.3 for February—the lowest reading since the survey was launched in early 2004. … Economists polled by Reuters had expected this private survey of China to come in at 45.7. January’s reading came in at 51.1.

+ CNBC: Satellite images from NASA show a surprising effect of the coronavirus outbreak in China: less air pollution.


3. Portfolio Status

Sig Plan Mid-Quarter Indicators

Plan Status Signal
3Sig -13.6% from Target Strong Buy
6Sig -24.3% from Target Strong Buy
9Sig -9.2% from Target Weak Buy

Stocks roared back yesterday:

Dow 26,703 +5.1%  
Nasdaq 8952 +4.5%  
Nasdaq 100 8878 +4.9% TQQQ +13.7%
S&P 500 3090 +4.6%  
S&P 400 1875 +3.4% MVV +3.6%
S&P 600 908 +2.6% IJR +2.6%

Over the weekend, 3Sig was 15.7% below its quarterly target, under the bottom of its deep green buy zone. Now it's at -13.6%. 6Sig went from -26.9% to -24.3%. As usual, the biggest mover was 9Sig, which went from -18.6% to -9.2%, almost out of its buy zone and into its neutral zone.

Volatility is immense now. After last week's waterfall crash, yesterday's big spike gave investors whiplash. Those who bet on downside at the end of last week now face the tough decision of whether to cover and lose money back-to-back, or risk losing even more as the market moves higher while they hope for another leg down.

+ Shares of Apple (AAPL $299 +2% YTD) gained 9.3% yesterday, the stock’s largest one-day move in more than 11 years. Eric J. Savitz wrote at Barron’s last night that “many analysts think that Apple is only seeing demand delays, rather than demand destruction, with no fundamental changes to the company’s long-term outlook.”

+ The Hill: Traders are betting on the Fed to cut rates even before the next formal policy meeting later this month, pushing the central bank to shift course on rates to soothe financial markets. The Fed can also expect steady pressure from President Trump, who has extended his frequent calls for lower interest rates as his administration responds to the public health emergency.

+ CNBC: Global financial ministers and central bankers held a conference call on Tuesday morning to coordinate the financial and economic response to the coronavirus. The teleconference call was led by Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell to coordinate a global financial and economic response to the virus.

+ Jared Dillian at The Daily Dirtnap: “I hesitate to say that the lows are in, but my gut tells me the lows are in, or close to it. … We could get a retest of the lows on some awful tape bomb about a bunch of coronavirus in NYC, but I think (knock on wood) that we’re in the neighborhood of the lows for this move. … Coronavirus is a natural disaster. Generally, you don’t worry about natural disasters in the market—you worry about the man-made ones.”

Things are looking up,
Jason Kelly

This entry was posted in Coronavirus Digest. Bookmark the permalink. Both comments and trackbacks are currently closed.


  1. Matthew Lester
    Posted March 3, 2020 at 11:14 pm | Permalink

    Excellent update on all things “coronavirus.”

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