Monday – February 24, 2020

Market opens sharply lower in the wake of the accelerated cases of coronavirus beyond China. The S&P fell 100 points. The Dow fell nearly 1,000 points. The Tech-heavy NAS is feeling the most pain, down over 300 points, which translates to a 3.5% decline. All of 2020 gains are being erased. The disease has now spread to at least 28 countries. Italy has canceled all public events in Venice and Milan as it confirmed 150 cases (and four deaths) of the virus over the weekend, while those diagnosed in South Korea – which raised its disease alert to the highest level, nearly 800. Stocks around the globe were sharply lower. As we covered for weeks, most recently on Friday, this Market was way, way overdue for a sell-off. The coronavirus might just have been the trigger for the inevitable. The underlying health of the Market has not been nearly as strong as the price reflected. There was razor-thin leadership of just the mega cap Tech and Utilities. The Bond Market has been telling a much different story, and it continues this morning with the 10-Year Treasury yield down to 1.36%. That is the lowest level in history, only reached once before back in the Summer of 2016 around Brexit. The 30-Year Treasury hit an all-time low on Friday, and continues to slide, yielding just 1.82% as I type. Bonds are going to have a great day today. Gold is too. Gilead has been working on a treatment for the virus, and its stock is jumping 8% in early trading. The IMF has already cut estimates for Global GDP as well as China. Some will no doubt suggest that Bernie Sanders success in the primaries is another reason why the Market is selling off because a President Sanders is believed to be no friend of stocks. President Trump heads to India for the first time this week to meet with Prime Minister Modi and discuss global trade. Stocks are sharply lower. Bonds are higher, with yields falling to historic lows. Gold continues to rally as safe-haven status. The Dollar is strong. Oil is weak and the VIX has exploded higher with increased fear. The Stock Market is getting oversold quickly on a short-term basis and an oversold bounce is likely. But we aren’t convinced that the lows are in place yet and are remaining defensive. Our hedges are working very well right now, proving that our patience was well suited. It was really hard and quite frustrating to remain patient in what seemed to us a reckless Stock Market rally. Today’s price action is much more healthy than the unabated monthly rally higher. Hang on tight and keep those belts buckled.

Have a great morning,

Mike Frazier

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