Last week, the coronavirus made headlines globally as the virus spread and governments around the world took swift action to contain its impact. The implication for global economic output is too early to quantify, but given the measures already taken, I anticipate the impact in China will be significant. Notably, Chinese demand for oil has fallen by 20% in the last few weeks. At this point, I don’t expect the effect outside of China to be meaningful; however, significant uncertainty exists as some experts think the virus won’t peak until a few weeks from now.
In the U.S., attention this week will focus on the Iowa caucus, the State of the Union address and impeachment proceedings. All of this political noise has crowded out some pretty decent economic statistics and earnings reports.
My expectation is for stocks to remain under pressure for the next few weeks. However, I see any significant sell-off in the U.S. of 5-7% from Friday’s close to be an attractive buying opportunity given the fundamentals of the U.S. I also expect the fall in U.S. Treasury yields to subside in the next few weeks.
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