The outbreak of the awful coronavirus in China over the past weeks has had everyone running scared, including me. I “freaked out” in terms of what I feared it might mean for the stock market, among other things. Initially, I suggested (on January 27) the Standard & Poor’s 500 index could correct toward 3150 as a consequence of the effect on the China and global economy, through reduced travel and production, etc.
I happily admit, however, that perhaps that was somewhat too cautious. Specifically, the combination of the coronavirus risk, plus the potential MAX 737 hit to Boeing (BA) production and results, and the risk-off indications in the credit and VIX markets had pointed early on to an expected rise in “equity risk premium.” That would mean a falling price/earnings ratio.
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