Yesterday the World Health Organization declared the coronavirus to be a global pandemic. At 9 pm last night President Trump announced a 30-day travel ban with Europe. This combination suggests a recession might already be in place in Europe and this could easily hurt the US economy.

Last night I spoke to a doctor from the Mayo Clinic. She indicated that the hospital is expecting the spread of the virus to rise dramatically over the next two weeks. The reason for this is that coronavirus is a new virus, and no one has immunity. Statistically a normal person with the flu might infect 1.7 new people, but a coronavirus victim appears to infect 2.5 people. A coronavirus-infected person is symptom free for 3 to 5 days and is contagious during this time. While the normal flu virus can live on tabletops and other surfaces for two hours, the coronavirus can survive for two days or more. The reason some experts are suggesting staying six feet away from others (social distancing) is that the virus appears to infect an area three feet around someone with coronavirus. And finally, the fever that accompanies the coronavirus could reach 104 degrees and have symptoms of pneumonia in some cases. These are the factors that make it more deadly for the elderly and those with compromised immune systems.

She added that there is no need to panic and to a large extent this is much like a very bad flu; but in coming weeks and months it is important that everyone protect themselves by regularly washing their hands with plain soap and water for 20 seconds. The elderly and those with compromised immune systems should consider social distancing or perhaps self-quarantining.

Given what we know today, it is likely that the coronavirus epidemic will become much worse in the next two weeks. In the interim, we should expect the financial markets to remain under pressure.

The positive in the current situation is that this is a medical crisis and not a financial crisis. The 2008 crisis triggered systemic risk in the global banking systems. Had a liquidity crisis ensued it could have spiraled out of control. This is not true today; our financial system is well capitalized. In addition, President Trump has indicated that he will recommend to Congress that small and medium sized companies affected by the epidemic be offered credit during this period and employees suspended due to the crisis should continue to be paid. The US economy demonstrated good momentum up until the end of February and once this medical crisis is over it should spring back quickly. However, in the near term there are many unknowns. Financial markets handle bad news well, but they handle unknowns poorly.

In times of great uncertainty, we measure the worst-case scenario with trailing SPX operating earnings. Earlier this week we wrote: “If we measure downside risk using the average PE of 15.6 and SPX’s 2019 earnings of $158, we find a low-risk valuation target of SPX 2465. Note: this is 9.8% below this week’s intraday low of SPX 2734. Also supporting the equity market is the fact that the SPX dividend yield is now 152 basis points above the 10-year Treasury yield. This is the highest spread since March 1955.”

The bottom line is everyone should protect themselves and their families by being wise in terms of socializing and washing their hands frequently throughout the day with simple soap and water.

Regulation AC Analyst Certification
I, Gail Dudack, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific views contained in this report.

Click to download



“Overweight”: Overweight relative to S&P Index weighting
“Neutral”: Neutral relative to S&P Index weighting
“Underweight”: Underweight relative to S&P Index weighting

Other Disclosures
This report has been written without regard for the specific investment objectives, financial situation or particular needs of any specific recipient, and should not be regarded by recipients as a substitute for the exercise of their own judgment. The report is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell securities or related financial instruments. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. The report is based on information obtained from sources believed to be reliable, but is not guaranteed as being accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in the report. Any opinions expressed in this report are subject to change without notice and Dudack Research Group division of Wellington Shields & Co. LLC. (DRG/Wellington) is under no obligation to update or keep current the information contained herein. Options, derivative products, and futures are not suitable for all investors, and trading in these instruments is considered risky. Past performance is not necessarily indicative of future results, and yield from securities, if any, may fluctuate as a security’s price or value changes. Accordingly, an investor may receive back less than originally invested. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report.

DRG/Wellington relies on information barriers, such as “Chinese Walls,” to control the flow of information from one or more areas of DRG/Wellington into other areas, units, divisions, groups or affiliates. DRG/Wellington accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this report.

The content of this report is aimed solely at institutional investors and investment professionals. To the extent communicated in the U.K., this report is intended for distribution only to (and is directed only at) investment professionals and high net worth companies and other businesses of the type set out in Articles 19 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001. This report is not directed at any other U.K. persons and should not be acted upon by any other U.K. person. Moreover, the content of this report has not been approved by an authorized person in accordance with the rules of the U.K. Financial Services Authority, approval of which is required (unless an exemption applies) by Section 21 of the Financial Services and Markets Act 2000.

Additional information will be made available upon request.

©2020. All rights reserved. No part of this report may be reproduced or distributed in any manner without the written permission of Dudack Research Group division of Wellington Shields & Co. LLC. The Company specifically prohibits the re-distribution of this report, via the internet or otherwise, and accepts no liability whatsoever for the actions of third parties in this respect.

PLEASE NOTE: Unless otherwise stated, the firm and any affiliated person or entity 1) either does not own any, or owns less than 1%, of the outstanding shares of any public company mentioned, 2) does not receive, and has not within the past 12 months received, investment banking compensation or other compensation from any public company mentioned, and 3) does not expect within the next three months to receive investment banking compensation or other compensation from any public company mentioned. The firm does not currently make markets in any public securities.

Latest Posts

Equities Perspective

You Wish You Had More Money to Invest But Don’t …

Read More
Equities Perspective

Be Careful What You Wish For

Read More
Equities Perspective

Utilities … They’re Not Your Father’s Oldsmobile

Read More
© Copyright 2024. JTW/DBC Enterprises