by Bryan Perry

January 28, 2020

Just when it seemed as if all the stars had lined up for the S&P 500 to make a beeline to the 3,500 mark by the end of earnings season, the one thing that no one expected made its presence known – a pandemic.

After all, the Fed is using repos and T-Bill purchases to inject hundreds of billions of dollars into the financial system, the price of WTI crude has sharply declined by $10 from the peak of the Iran crisis to $54 per barrel; the yield on the 10-year Treasury has fallen to 1.68%, housing starts for December spiked 16.9% in a month, consumer sentiment is at 99.1%, and retail sales at +0.7% were well ahead of estimates.

Housing Starts and Building Permits Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

One would assume that all this upbeat economic activity would be driving the rate of inflation higher, fueled by rising wages, but the many offsets – energy being the biggest – are keeping a lid on overall inflation. The current PCE rate of inflation, at 1.5%, remains below the Fed’s target rate of 2.0%. That is sure to keep the Fed adding to its balance sheet even as the stock market hits new all-time highs.

PCE Inflation Measures Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

To top it off, fourth-quarter earnings are living up to expectations. As of Friday, with 17% of S&P 500 companies reporting, 73% of them have reported a positive EPS surprise and 67% of S&P 500 companies have reported a positive revenue surprise (source: FactSet Earnings Insight – January 24, 2020).

Best of all, the companies that matter the most to their respective sectors are posting the most impressive Q4 results: J.P. Morgan (JPM), UnitedHealth Group (UNH), Constellation Brands (STZ), Delta Air Lines (DAL), Abbott Labs (ABT), Union Pacific (UNP), Intel (INTC), and American Express (AXP).

Navellier & Associates does own J.P. Morgan (JPM), UnitedHealth Group (UNH), Constellation Brands (STZ), Abbott Labs (ABT), Union Pacific (UNP), Intel (INTC), and American Express (AXP) in a few managed accounts but does not own Delta Air Lines (DAL).  Bryan Perry does not own J.P. Morgan (JPM), UnitedHealth Group (UNH), Constellation Brands (STZ), Delta Air Lines (DAL), Abbott Labs (ABT), Union Pacific (UNP), Intel (INTC), and American Express (AXP) in personal accounts.

This week is likely to see more high-profile market leaders put up solid numbers and guidance, which should fortify the hearts and minds of investors wondering if they should initiate or add to positions. The decision to do so should be easier to consider now that some of the overbought frothy technical condition is being addressed as of Friday’s sell off. Traders were seeking an excuse to sell stocks – and they got it.

Coronavirus was the x-factor that came without notice and – being its source is China – that makes for even more uncertainty, due to lack of accurate (or tainted) information from the Beijing government. Memories of H1N1 flu virus that killed 4,000 in the U.S. and many more worldwide in 2009-2010 are too fresh. The SARS virus outbreak of 2003 killed 800+ and that virus pales in comparison to the Spanish flu of 1918-1919 that infected around 30% of the world’s population and killed an estimated 50 million.

As of last Sunday, nearly 2,000 confirmed cases have been reported and at least 56 people have died from the virus in China. The real concern for health officials is that the virus is likely more contagious than feared, as people can be infected for two weeks without realizing they are sick. Fortunately, medical technology and containment procedures will likely arrest this strain before it spreads too aggressively.

Assuming this global pandemic scare is arrested, investors might want to look at some stocks that have high Chinese and Asian market exposure within the airline, lodging, gaming, cruise, and online travel sectors, for they have been collectively sold off.

Shares of Delta Air Lines (DAL), InterContinental Hotels Group (IHG), Trip.com (TCOM), Royal Caribbean Cruises Ltd. (RCL), Wynn Resorts Ltd. (WYNN), and Booking Holdings (BKNG) are all part of the Coronavirus trade that will at some point in the near future provide high-quality entry points.

Navellier & Associates does not own Delta Air Lines (DAL), InterContinental Hotels Group (IHG), Trip.com (TCOM), Royal Caribbean Cruises Ltd. (RCL), Wynn Resorts Ltd. (WYNN), and Booking Holdings (BKNG) in managed accounts and our sub-advised mutual fund.  Bryan Perry does  not own Delta Air Lines (DAL), InterContinental Hotels Group (IHG), Trip.com (TCOM), Royal Caribbean Cruises Ltd. (RCL), Wynn Resorts Ltd. (WYNN), and Booking Holdings (BKNG)in personal accounts.

The global economy is just starting to show signs of turning higher with the recent Phase 1 trade and USMCA deals being signed. And while there may be more negative news surrounding the spread of Coronavirus yet to come, investors should make a short list of those world-class companies that are poised to not just recover from the viral scare that is currently enveloping these market sectors, but will also thrive in the months ahead when the data will likely start to support a rebound in global growth.

Global Economic Growth Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It is never comfortable to be buying stocks when there is an unknown quantity of risk that is prevalent. But when the market is strong, as at present, the buying opportunities are few and far between. And while there is “no blood on the streets,” per the famous quote from the nobleman and banker Baron Rothschild, there is pause in the bullish momentum, and a big dip in the prices of travel and leisure stocks.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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