Wash your hands after reading this!
While listening to one of my favorite podcasts recently, I heard a quote by musician Buddy Guy about something his mother told him. "It is easy to climb a ladder, just go up one rung at a time, but you miss one step and it's fast your bum hits the ground". Although she was referring to the music business, it sounds a lot like what is going on in the stock market.
After a significant drop at the end of 2018 about concerns of a trade war between the US and China, the stock market climbed it's way higher one rung at a time through all of last year and into this year. Until the end of February anyhow. Last month things were looking pretty good. The trade talks were progressing and the economy was doing well, high levels of employment and positive consumer sentiment driving spending.
But now, a missed rung? Maybe two. Covid-19 and a bust in the oil fields; both are certain to have an economic impact and the combination of the two will likely derail the economic expansion and push stocks into the first bear market since 2008.
Best guess estimates about COVID-19 provided by JP Morgan and taken from a presentation by James Lawler, MD, MPH, FIDSA of the University of Nebraska:
- Doubling time 7-10 days
- Community attack rate 30-40%
- Cases 96 million
- Hospital Admissions 4.8 million (5%)
- Cases requiring ICU care 1.9 million (1-2%)
- Cases requiring ventilatory support 1%
- Deaths 480,000 (0.5%)
Hospitals are facing a crisis and while they are moving to prepare, the loss of human life may be significant.
Beyond that, the transportation industry is getting hit harder than 9/11 and the Financial Crisis combined. Service businesses of all sorts are facing some difficult challenges and layoffs are already being announced.
As you know events are being canceled and there is a great deal of disruption and uncertainty going on that may persist for several months or more.
And, while most people will enjoy paying less at the gas pump, the collapse in oil prices is likely to significantly impact the US shale oil business and result in layoffs in the oilfields. And, some of the more highly leveraged businesses in the industry may go bankrupt; not great for the economy.
Stock markets don't like uncertainty.
We moved from Denial to Fear last week and I expect we will eventually go through all of the phases of market emotions before this is over.