Is It Time To Buy The Dip? Not Yet Says Allianz’s Mohammed El Erian; Companies In The Hunt To Develop A Coronavirus Vaccine, And What It Does/Doesn’t Mean To The ‘Winner’s’ Stock Price
Yesterday’s +1,000 point DOW loss might have been painful; but, as a percentage, it was only a -3.56 percent loss; and, did not even make the top 50 one-day loss in the DOWs history. Of note, the three worst one-day DOW selloffs to date are: 1) Oct. 1987, -22.6%; Oct. 28, 1929, -13.5%; and, Oct. 29, 1929, -11.7%. Yesterday’s one-day loss cost S&P 500 companies a $927B cut in their collective stock prices.
If you are looking to invest in the sectors that have been hit the hardest to date in 2020, they are: Energy -15.2%; Materials -4.6%; and, Financials -3.6 percent. In the transportation areas — airlines, cruise ships and leizure travel, and shipping have been particularly hard hit.
Last week, Mohammed El Erian, Chief Economist at Allianz warned investors, during an interview on CNBC’s Squwak Box, about the damage the coronvirus could do to U.S. equities. As I noted in my article last week, Mr. El Erian said “The coronavirus is different….it is big. It’s going to paralyze China. It’s going to cascade throughout the global economy…..and importantly, it cannot be countered, as we just noted, by central bank policies…So, I think we should pay more attention to this, and we should try and resist our inclination to buy the dip.” Mr. El Erian was interviewed on this morning’s/Feb. 25, 2020 CNBC Squawk Box and asked, “What does he think now?, in light of yesterday’s +1,000 point selloff. Mr. El Erian urged investors to continue to resist the inclination and urge to buy the dip, as hard as that is. There are three uncertainties,” Mr. El Erian said: 1) Short-term uncertainties — Hoe quickly can we contain this virus; How quickly can we reverse the negative economic effects; 2) Second, the longer-term uncertainty: What does this coronavirus outbreak do to China’s development process; What impact does it have on de-globalization and diversification of the supply chain by multinationals; and 3) There are a whole host of uncertainties with respect to global economic conditions. We [global economy] wasn’t in a great place to begin with; and stock markets had been de-coupled from the fundamentals [and essentially ignoring the bad news]. With all these uncertainties, Mr. El Erian urged investors to “resist the urge to buy on the dip, because this time it is different.” Mr. El Erian acknowledged that “of course, there will come a time to buy the dip,” as valuations come down; “but, not now.”
Dr. Scott Gottlieb, former FDA Commissioner was also interviewed on this morning’s CNBC’s Squawk Box, and he told viewers that there isn’t meaningful diagonistic capability in the U.S. to detect the coronavirus and much more effort and resources are required to fully understand what is really occuring. Typically coronavirus don’t circulate in the summer — although Italy is having temperature in the 60s and Singapore in the 90s, But, he does expect the virus to likely peak this spring; but, warned it could reappear in the fall.
Top Companies In The Race For A Coronavirus Vaccine — And. What It Does/Doesn’t Mean For Their Bottom Line/Stock Price
CNBC Squawk Box interivewed Jared Holz of Jeffries, regarding companies in the hunt for a coronavirus vaccine; and, what that could mean for any such company and its stock. There are lots of companies in the race to develop a coronavirus vaccine including: Regeneron, VIR, Gilead, J&J, Moderna, Roche, Illumna, Abbvie, GSK, Sanofi, ThermoFisher, Oiagen and Cepheid. But. Mr. Holz named Gilead as the big leader; and, behind it, is Moderna. But, and there is a big but here. Mr. Holz said the potnetial monetary gain for the winner isn’t clear cut. Indeed, Mr. Holz thinks whoever wins, it will have a small positive impact on their business, and mostly immaterial. For one thing, the companines racing to develop a vaccine are focusing on theraputic treatment — once someone has the virus — as opposed to innoculating everyone as a preventive measure. And of course, there will be a big push for compasionate distribution. Bottom line from Mr. Holz is that if you are investing in these companies because they might have the winning vaccine for coronavirus — you are investing for the wrong reason. That’s all for now. RCP, fortunascorner.com