Download now: The Downfall of Cable, and the Rise of 5G!

The Sum of All Fears

Written by Briton Ryle
Posted January 27, 2020

Deep down, we all know the greatest threat to our modern way of life. It's not the dirty bomb in Manhattan. And it's not the giant magnet that wipes out all financial and ownership records. Even climate change carries a window of opportunity for humanity to really buckle down and find solutions.

It's the pandemic that we simply cannot get our brains around — the new plague or Spanish flu, the mutated bug that has the potential to wipe out a significant percentage of the world's population. That's the sum of all our fears. 

We've already seen antibiotic half measures that have only served to nurture bacteria mutations to the point that we have MRSA. The first case of a MRSA infection happened in 1968. Today, we still can't reliably kill it.

What happens when we get the perfect virus?

So far, viruses tend to have a fatal flaw. Maybe the incubation period is too short, so the victim starts sneezing and coughing before he/she has managed to infect enough people to ensure that the virus will spread far and wide. 

Maybe the virus is just too mean and kills its host too quickly. 

It's like a game of roulette. Eventually, nature will hit on just the right mutation and the long shot will pay off. That's why we panic-sell stocks when people start dying. A true pandemic would take a couple years to play out. The death toll would measure as a percentage of the global population.

How long would it take the S&P 500 to come back after 10% of global economic activity got wiped out? It took the Nasdaq 15 years to recover from the internet bubble. The effects of a pandemic could last a generation. 

The Sun'll Come out Tomorrow 

To make it as a human, you gotta have a pretty solid optimistic streak. If you're not gonna carry the notion that things are gonna get better in your heart, well, good luck. 

It's the same as being an investor. Are you really gonna invest if you think the market is a bubble, the fed is out of control, and the U.S. dollar isn't worth the paper it's printed on? 

If you're holding put options the day it all comes crashing down, is anybody really gonna pay off that winning lotto ticket? 

Are you really gonna put your money at existential risk if you believe that, regardless of how remote the possibility, the risk is real? 

Today, I want you to channel your inner Annie. I want you to see the glass as half full. Don't look at the 400-point drop on the Dow and think, "Oh crap, why didn't I sell last week?" Instead, look at the $8 drop for Apple shares and think, "Huh, drop another $8 and I'm gonna own some Apple stock."

I can't tell you that the coronavirus is gonna go the way of SARS and Ebola before it. There's no way to predict that markets will drop 10% over the next six weeks, then a treatment will emerge, and the Dow will rally 800 in a day...

But a little selling followed by a lot of buying is how this will likely play out. 

The Big Hint

Last week, economic data and earnings gave us a couple really big hints about what was in store for the stock market. 

For starters, manufacturing surveys in the EU and the U.K. beat expectations. Services grew nicely in the U.S., but manufacturing shrank a bit. 

The EU has been a big disappointment for global growth. It is more sensitive to China trade than the U.S. As an example, for five quarters in a row, FedEx has cited weak EU growth as a significant factor in its earnings miss. 

I've suggested that EU trade with China would likely improve this year — not so much because of any specifics in the Phase 1 trade deal, but because companies have mostly completed their supply-chain maneuvering to avoid China. And it's starting to happen...

Plus, Intel (NASDAQ: INTC) blew out Q4 earnings on cloud growth.

Now, I've been focused on the fact that Intel has abandoned the mobile market and is losing share for laptops to AMD and Qualcomm. Seems to me the future lies with mobile devices. 

But Intel dominates the datacenter server chip market. Of course, these are the servers that deliver to mobile devices and growth there is just crushing. Intel hasn't really missed the cycle at all. In fact, the strength in the datacenter server market is bullish for chips and software virtually across the board. 

The stock market has been surging since October. It needs a break, and the big money would love to see a correction to drive prices lower where they become more attractive. So I bet the headlines get increasingly bearish this week. 

But keep an eye on stocks that aren't getting creamed this week (I see one of my faves, Chewy (NYSE: CHWY), is up a bit today). These will trade higher nicely when the market turns higher. 

Until next time,

brit''s sig

Briton Ryle

follow basic@BritonRyle on Twitter

A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.

Buffett's Envy: 50% Annual Returns, Guaranteed