The beginning of 2020 starts to look alarmingly similar to 2018. Back then the US stocks extended their impressive 2017 gains in the first few weeks of trading only to plunge at the end of January and sustain heavy losses in the first half of February. In that period the S&P 500 Index plunged almost 12% from the peak to trough on the back of rising concerns that inflation may rise much faster than initially anticipated forcing the Fed to accelerate the pace of monetary policy tightening. It was just a taste of what was to come as 2018 proved to be a tumultuous year for the US equities which set record highs in September only to end the year deep in the red.
Back to 2020, global stocks are in a risk off mode amid escalating concerns about the coronavirus. The S&P 500 Index plunged 1.57% on Monday trimming its year-to-date gains to just 0.40%. One could argue that this is just a correction from seriously stretched levels that will ultimately prove as an opportunity to buy stocks on the back of an assumption that the Chinese officials will, eventually, get on top of the coronavirus.
However, it is extremely difficult to estimate the negative impact on the Chinese economy at a time when the death toll is rising sharply (106 so far) and the number of confirmed cases is soaring (4,515 as of today). More than 50 million people in China are now in a lockdown.
t is also worth considering the following: what if we are on the brink of an exponential increase in the number of people affected by the deadly virus? One could argue that we have already reached this stage given that confirmed cases reportedly increased by 65% over the past few days.
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