AGFiQ's Early 2020 Analysis Of Coronavirus And The Current Cycle

Mark Stacey, Senior Vice President, Co-CIO AGFiQ Quantitative Investing, and Head of Portfolio Management, spoke with ETF Trends about where things are with the current market environment, given various obstacles, such as the Coronavirus, and where last year’s cycle left off.

As the market no doubt fluctuates at times based on headlines, regardless of how serious, it’s no surprise to see a reaction. However, as Stacey explains, even before the Coronavirus outbreak, there is data to look at concerning the current cycle suggesting via macro data that the unemployment rate is low, housing and auto sectors are in a good place.

The impact this could have from going from the end of one cycle and into a new one doesn’t necessarily mean this sort of progress will come to an end. Thinking about the potential impact, Stacey notes the excellent work done in lowering interest rates and making sure the cycle continues to extend, which had begun in 2018 once rates were getting cut.

“There have been a lot of negative headlines on trade, as people look at the cycle, but they also recognize the Fed is trying to keep the economy going,” Stacey adds.

Keeping An Eye On Coronavirus

In regards to the Coronavirus, Stacey points out what’s taken place. He highlights the increase in volatility, the market pulling back over a couple of days due to the acceleration of the virus, and the death toll. This was especially the case once the virus broke out beyond the China borders and entered other parts of the world, including North America.

Stacey acknowledges the one consistent thing, which is the initial reaction to an outbreak, a comparison to something like SARS, and the bounceback over the past few weeks, based on China’s efforts to prevent further spreading and contain the situation. As a result, investors are comparing these situations, determining what happens when they reach their peak, what kind of potential stimulus will occur, and what will be the reaction in China.

All of these elements have an impact, which is important. When people are purchasing goods, it can show where things are with the effect of something so potentially devastating.

Related: Amid Coronavirus Declines, a Better Way to Think About Chinese Equities 

Stacey adds, “I think the market believe, ‘Well, if we can get to a certain point where it peaks out, then what kind of reaction can we get from the Fed, and then support from governments and central banks,’ and that’s why the market is bouncing back, and why there have not been as many negative headlines particularly in the U.S. news or outside of China, which hopefully suggests its more contained.”

So, again, Stacey describes the current marketplace as being reasonably fluid. An outbreak will undoubtedly have an impact on the market. It will probably have an effect on large companies. The work to contain these sorts of things, along with the help from central banks and government all play their role as well. Still, investors do want to consider where things are headed, which is why there has been stabilization in the market.

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