By Jon Dougherty
(TNS) Earlier this week, stocks on Wall Street were doing just fine, continuing to set records, and reflective of a magnificent economy built by pro-growth policies implemented by President Trump and tax cuts passed by Republicans.
But by week’s end, the market had lapsed into “correction” territory, shedding some 3,200 points. And why?
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CNBC reported Friday:
Global stocks markets have lost $6 trillion in value over the past six days, according to S&P Dow Jones Indices. Stock markets around the world are plunging into correction territory as investors fear the surging of coronavirus cases outside of China will escalate the deadly virus to a pandemic. The market sell-off also wiped about $4 trillion from U.S. stocks in the same period, according to the firm’s Senior Index Analyst Howard Silverblatt.
“The current, and largest concern now is if consumer’s start pulling back on their spending - consumer spending has been supporting the economy, as it makes up for disappointing corporate expenditures,” Silverblatt wrote in an email to CNBC.
Fox Business adds:
U.S. equity futures are pointing to another large drop in shares, deepening a global rout after Wall Street endured its biggest one-day drop in nine years.
The major futures indexes are indicating a decline of 1 percent, but overnight, Dow futures were down by more than 400 points.
This follows the largest one-day decline for the Dow Jones Industrial Average in history as stocks fell for a sixth day.
What in Sam Hill is going on? What is causing all of this panic over a virus that has only infected 83,000 people and killed 2,800 — in a world filled with 7.8 billion souls?
This compares to the U.S. influenza outbreak, which is so common we call it “flu season.” According to the Centers for Disease Control and Prevention, the infection numbers, infection rate, hospitalizations, and deaths are far worse than anything we’ve seen with coronavirus, even in China where it began.
“CDC estimates that so far this season there have been at least 29 million flu illnesses, 280,000 hospitalizations and 16,000 deaths from flu,” the nation’s health agency said.
The CDC says the mortality rate for this year’s flu season is 6.8 percent, below the “epidemic” threshold of 7.3 percent.
What’s the death rate from coronavirus…in China, where it began? 2.1 percent on average, nationwide, far below this year’s flu epidemic in the United States, which has a far better healthcare system. Mortality rates are higher in Wuhan City, the viral epicenter (4.9 percent) and Hubei Province, where Wuhan City is located (3.1 percent), while falling to 0.16 percent in all other provinces.
Those figures are well below the mortality rate of the 2019-2020 U.S. influenza cycle.
Currently in the U.S., there are only 60 known cases of the virus, and while that figure could rise, the most logical question, given the toll taken by influenza so far is, “So what?”
What if the number of coronavirus cases in the U.S. rises by a factor of 1,000? That’s still only going to be 60,000 cases, or a fraction of flu cases this year. And with a mortality rate, on average, of around 2 percent — in a country with inferior healthcare — can someone please explain why we should panic over this?
China’s industrial output has been lowered by the outbreak, we get that. But factories are moving back into full production now, and by all accounts — non-Chinese sources, by the way — it appears as though the outbreak there is subsiding.
Yet, here in the United States, the reaction in the markets is so severe you’d think that the Black Plague was creeping and crawling through every major city, leaving millions dead in its wake.
But don’t take our word for it.
U.S. stocks SPX, -4.42% have entered correction territory in what S&P Dow Jones Indices says is the shortest time span in over 70 years. Futures prices imply a 75% chance of an interest-rate cut from the Federal Reserve within the next month.
The reaction doesn’t make sense to Tom Porcelli, chief U.S. economist at RBC Capital Markets, which is one of the primary dealers of U.S. Treasury securities.
“What do rate cuts at the front-end do exactly to shift the trajectory of the core short-term problems stemming from COVID-19? It boggles the mind. Cutting now when Fed funds is already sitting 100 basis points below neutral further cements the dangerous precedent already set that the only independent variable in the policy reaction function that matters is what the S&P 500 is doing of late,” he says.
RBC’s tracking of the U.S. economy finds it not just fine but better than average. Even the durable-goods orders report released on Thursday had some positive signs for capital expenditure going forward.
Porcelli finds the stock market reaction severe.
“To be sure, we sympathize with the narrative that some economic activity could be lost for good. In other words, you don’t double up on certain services spending once the dust settles because you put it off on COVID-19 fears. But a short-term drop-off in activity (even if not fully recoverable) has a diminishing impact on the net present value of future cash flows the further out your horizon goes! In other words, even if we are looking at a supply shock where postponed activity does not fully get recaptured, it still does not warrant a [more than] 10% repricing in a market that is supposed to be forward-looking in nature and ultimately realigns with fundamentals,” he says.
Meanwhile, Republicans, as usual, are falling for this well-worn, well-scripted Democratic trap ahead of the 2020 elections, as The Hill reports:
Republicans who have been counting on a roaring economy to power President Trump and GOP congressional candidates on Election Day are growing nervous because of the economic havoc wreaked by the coronavirus.
Earlier this month, GOP senators were riding high after Trump’s acquittal on impeachment charges in the Senate. Now they’re wrestling with predictions of an economic slowdown that could upend the political calculus for 2020.
Seriously? Given all this data that, thus far, there is no ‘coronavirus emergency?’
“There’s a potential to really affect the economy, not only this country negatively, but throughout the world,” said Sen. John Boozman (R-Ark.).
“I think we’re in a position to do a good job of combating it. We just don’t know really what to expect as far as the full impact,” he added. “What I believe is we should be ready for the worst and essentially whatever money it takes, spend that to protect the American public.”
Uh, President Trump convened a coronavirus task force nearly a month ago. Back then, CNN’s biggest issue with it was that it wasn’t…”diverse” enough. Enter eye roll here.
As a sign of the growing anxiety, Senate Appropriations Committee Chairman Richard Shelby (R-Ala.) said he is prepared to offer more than $4 billion in an emergency bill to fight the virus, significantly more than the $2.5 billion proposed by the Trump administration but less than half of the $8.5 billion requested by Senate Minority Leader Charles Schumer (D-N.Y.).
Oh, brother. Question: What’s the magic monetary number that will ‘scare’ the coronavirus away? $4 billion? $2.5 billion? More? Less?
Consider, Republicans: What is the one thing Democrats could do to hurt President Trump and GOP chances of reelection in November? Tank the economy. How? By creating a phony “crisis” that tanks the economy.
Viola; we give you coronavirus.
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As we noted earlier this week in attempting to talk everyone off the ledge here, Democrats live by former Obama Chief of Staff Rahm Emmanuel’s motto of ‘never letting a good crisis go to waste.’
And what I mean by that is an opportunity to do things that you think you could not do before,” he said.
It’s time to back away from the ledge, folks, especially Republicans. Get a grip. You know what’s going on here.
And for you Democrats who have just cost average Americans thousands of dollars in 401(k) retirement savings, you people need some serious comeuppance.