The Market: February 2020

Coronavirus stalls the market’s upward bias

After a strong run-up to the end of 2019, the market began in 2020 with an upward bias.

This, unfortunately, stalled as the Coronavirus began to spread in China. In response to the contagion, China has sealed off cities, and transport to and from China has been reduced.

The Coronavirus situation will reduce global GDP which will certainly put pressure, in general, on corporate profits. Certain industries like airlines, casinos, and technology will see a greater impact.

The news surrounding the virus is not good but the markets have a way of discounting information. After a few down trading days, stocks rebounded.

The stock market is either anticipating that the impact of the virus will be limited and/or investors believe the world’s central banks will add stimulus to their economies to help offset the dampening effects of the Coronavirus.

The Bull Market remains intact.

Whatever the reason, for now, stocks want to move higher. Until proven otherwise, the Bull Market remains intact.

Events like the Coronavirus usually are buying opportunities.

China will continue to grow

Regardless of the trade issues of 2019 or the Coronavirus of 2020, China will continue to grow and continue transitioning from manufacturing-centered to a service-centered economy. The consumer markets in China have enormous potential led by giant internet/technology platforms with a scale much larger than the US.

This is a good place for the patient, long-term investor to find buys.

Similarly, companies in Asian economies that trade with China like South Korea, Japan, and Taiwan also will be places to look for opportunities as those stock prices have also been impacted by the situation in China.

The massive run-up in disruptor and big tech companies

Setting aside China, the massive run-up in “disruptor” companies like Tesla, Amazon, and Shopify and in “big tech” like Apple and Microsoft should give even the most ardent Bulls some pause.

Asset prices get riskier the higher they are valued. The market’s price to earnings ratio is moving up faster than profits.

With a P/E of 19 and overall corporate earnings down for the past few quarters, the stock market is vulnerable to downdrafts.

— Ian Green, Pendragon Capital Management

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Note: This blog article is intended for general informational purposes only. Nothing in it should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.