Global equity markets were down by roughly half a percentage point on the week and year to date stocks are up roughly 3-4%.
In ancient Chinese philosophy, yin and yang is a concept of dualism, describing how seemingly opposite or contrary forces may actually be complementary, interconnected, and interdependent in the natural world, and how they may give rise to each other as they interrelate to one another.
To some extent, yin and yang are playing out in the equity markets right now.
On the one hand, investors are witnessing data which looks strong and confirms that the global economy was on an improving trend before the COVID-19 outbreak. Examples of this include a manufacturing survey in the US this week, which completely blew through all expectations on the upside, and a massive print for US single family housing activity in January. On the other hand, there are more worrisome economic developments associated with the virus. For example, car sales in China plummeted 92% year over year in the first half of February and Goldman Sachs is reducing its earnings growth projections for the global luxury goods sector to zero for this year
With respect to the virus itself, there is widespread agreement that China is getting to grips with the situation and globally the increase in infections was only 1% this morning. High frequency data from China such as daily coal consumption also looks like it is picking up. That said, markets have started to worry about South Korea, Japan and Singapore where the virus appears to be gaining a foothold. Just this morning, South Korea reported 100 new cases of COVID-19 bringing the total number of infections in South Korea to 204.
This kind of market, where good news and bad news co-exist, may be present for a while longer. With equity valuations stretched it would not be surprising to see markets trending sideways for a while or even drifting lower, possibly bringing the recession crowd back baying for blood.
However, the base case remains that investors will witness a sharp drop in global industrial production followed by an equally sharp recovery.