Is the Worst of the Virus Market Rout Close?

Commonwealth’s McMillan says 10-year Treasury yield dive is close to those in previous outbreaks.

As horrible as last week was on world stock exchanges, amid fresh news of new infection cases in California, Europe, and elsewhere, we could be near the market bottom.

That’s the conclusion of Brad McMillan, chief investment officer at Commonwealth Financial Network. He bases that conclusion on a comparison of 10-year Treasury yield drops during previous viral outbreaks. Investors, of course, rushed into the safety of the 10-year note, bidding up its price, and thus sending its yield lower.

In a chart, he shows how the T-note yields now are near the low point during the outbreaks of SARS, avian flu, swine flu, and Ebola. The Treasury is closest to the first two and has about 5 basis points to go before reaching the Ebola nadir and 10 for the swine flu one.

“It illustrates that we are close to the point of peak fear where previous epidemics bottomed,” McMillan wrote in a research note. “In other words, this may be close to as bad as it gets.”

Pointing to reports out of China that the cases there seem to have topped out, although infections elsewhere still are on the rise, he said it was possible to plan for a post-virus investing world. “Once the virus has been controlled, however, economies and markets will adjust to the new reality, which is very likely to be less bad than it might have been,” he opined. 

He acknowledged that coronavirus may be different than the other diseases. Either way, he said, “we should know in a couple of weeks.”

“Right now, the data is saying this is not all that different and, therefore, won’t be different this time,” he wrote. “Fortunately, what that means is that we can expect the virus to be brought under control—as it seems to have been in China—and that the world economies and markets will carry on.”

Meanwhile, California logged its second case of coronavirus from an unknown origin. Amazon warned workers about travel and Google scrubbed a Las Vegas conference. More than 50 nations have now reported infections. The virus continued spreading, including the first cases south of the Sahara, in Nigeria. Mexico also confirmed its first infection.

And Federal Reserve Chairman Jerome Powell indicated that the central bank stood ready to lower interest rates if needed.

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