25 Feb Capital 19 Catch-Up
Stocks Plunge as COVID-19 Spreads
US stocks have retreated almost 5% from their highs in just 2 days as cases of COVID-19 jumped around the world, particularly outside China.
Domestic lockdowns and quarantines in mainland China over the past month appear to have had some positive effect, with the rate of new case growth slowing. But it has been the appearance of 760 cases in South Korea and 152 in Italy that has worried markets.
It is hard to see a positive when the market falls 3.5% in a single day, but it looks to me like traders are trying to fully price the risk the virus presents in a single day. For even though there have been many cases, it is really only the elderly with pre-existing conditions that have lost the battle with the virus. Until it mutates, or we see cases of deaths in other demographics, the risk to corporate profits is minimal
Which is why we see this as a buying opportunity night now and no time to panic and sell.
The IMF agrees with us. They think it will only affect the world economy by 0.1%.
But traders, being short term in nature, freaked out and spent the day hitting the sell button. Their loss can be our gain, just like we saw in health stocks
The Health sector had a very bad day. But that was nothing to do with COVID-19 and all to do with the other disease for stock markets, the socialist polices of Bernie Sanders. He wants to do a Medicare for All type program and the big health insurers are the ones this will hit hardest.
Bernie had a good day in Nevada on the weekend, convincingly winning the vote. This increases his chance of becoming the Democrat Nominee and therefore is a step towards Medicare for All.
One of our favourite stocks fell almost 8% on the news. United Health (UNH) has as couple of business segments that will be hit hard should Bernie become the next president.
But the chance of that is almost zero so seeing this stock drop 8% gets us excited as we can buy more at a discount and then ride it back up when it becomes clear there will be no Medicare for All. Even if Bernie wins the Democratic nomination, then somehow beats the popular Trump he will still have to get his controversial ideas through Congress. There is simply no way all these things happen. Take it from us. Medicare for All is not coming in any time soon.
So go out and buy UNH at a discount while you can as it won’t last long.
There is another side effect of COVID-19 and that is for the semi-conductor industry. If it becomes a bigger problem and really does affect movement of people, then it will drive more industries and demand to trade online. That, of course, will mean more online infrastructure and hence more profits for the semi-conductor chip makers.
If you don’t know which ones then you can buy the ETF, VGT which is run by Vanguard and gain exposure to the sector as a whole.
Bottom Line : any further selling here will only be short term and is a good opportunity to put more money to work.