Pro Perspectives 1/24/20

January 24, 2020

We were watching for the PMI data today, for early clues that a bounceback in global manufacturing may materialize in the months ahead.  

We did indeed get a positive surprise on the German number (that’s for the economic engine of Europe).  And the overall eurozone PMI number came in better than expected too.  That's good news.  With this, stocks in Europe had a big day, up 1% on the German DAX, up 1% in the UK and up over 1% on the broad blue chip Euro Stoxx Index.

But overall it was a "de-risking" day heading into the weekend, with uncertainty surrounding the coronavirus.  U.S. stocks gave back about a percent of the gains on the month (still up 2%).  But the easier place to see global capital flows expressing unease about the virus is in U.S. Treasuries.  When fear sets in, money plows into the biggest, most liquid market as a parking place (bond prices go up, yields go down).  With that, 10-year yields traded as low as 1.67% today. 

We looked at chart on yields yesterday.  Let's take a look at stocks as we head into the weekend.   

We have a technical reversal signal in stocks today (a bearish outside range). 

Even with the very positive fundamental tailwinds for stocks, that's hard to ignore. 


As we know from the Ebola scare, fear can hit stocks quickly. But the fear-induced declines tend to be quick and with quick recoveries.  When google searches spiked on Ebola back in October of 2014, the stock market got hit for about seven percent in six days.  Seven days later, the decline was fully recovered. 

Here's a look at the search spike for coronavirus … 

In the case of the surge in Ebola fears, the VIX spiked from 14 to 31 during that October period.  The VIX closes today at 14.