February 23, 2019

The impact of the COVID-19 outbreak on the global economy dominated the market’s narrative this past week, even if the large majority of cases remained contained in China. Stocks fell as trading began Tuesday after Apple revealed that it would miss sales forecasts while the company was unsure of the extent of supply and demand shortfalls due to the new coronavirus. After the close of trading, auto parts company Aptiv also warned that the outbreak would weigh on its revenue and operating income more than anticipated. Investors appeared to worry that this was the “tip of the iceberg” in coming earnings downgrades. Stocks regained some momentum on Wednesday, following reports of a sharp drop in new virus infections in China, along with additional stimulus measures by the Chinese government. An alarming rise in infections at Beijing hospitals on Thursday may have helped send stocks back lower, however. On Friday, news of a jump in infections in South Korea and outbreaks in several Chinese prisons seemed to further dampen sentiment. Investors also appeared concerned by the Chinese government’s shifting methods of tallying new cases. Friday also brought some of the first evidence of a slowdown in the U.S. economy as a result of the COVID-19 impact. IHS Markit’s flash composite purchasing managers’ index (PMI) for February fell sharply into contraction territory, indicating the first decline in U.S. private sector activity since 2013. The data may have been especially discouraging given positive signals from data earlier in the week. Regional manufacturing gauges surprised on the upside, and January building permits reached another 13-year high. Virus fears and Friday’s PMI report appeared to foster a renewed flight to the perceived safe haven of the U.S. Treasury market and precious metals. For the week, North American and Japanese stock market indices weakened between 1% and 2%, European bourses were flat, but mainland Chinese stock markets surged over 4% for the best week since last April, as the central bank signalled further support for the economy; your BSD Global Tech Hedge Fund retreated 0.7% last week.

Coronavirus news will dominate market participants interest in the coming week, but there are few geopolitical events and global economic reports to keep an eye on. President Trump is set to visit India next week; no major trade announcements are anticipated for the visit. On the economic front, U.S. Q4 GDP due out on Friday will be the main event, but earlier in the week traders will be interested in the German IFO for February on Monday and Eurozone CPI for February on Friday.The impact of central bank liquidity injections on the stock market melt up was further illustrated by the Chinese stock market’s resilience this past week, but your BSD portfolio management team is still cautious whether the stock market momentum can continue given the recent negative economic news and doubts about containing the COVID-19 global outbreak. Your BSD Global Tech Hedge Fund is still positioned to reap rewards if the stock market finds new life, but We also have a scalable short equity indices hedge that will not only protect us from market declines but profit from a significant market correction.