We held a conference call yesterday to discuss the market and economic impact of COVID-19. In case you missed it, each of our speakers shared their key takeaways.

Saurabh Lele, CFA, Senior Commodities Analyst

The spread of COVID-19 outside of China has caused a lot of anguish in markets. More testing is starting to happen across the US and elsewhere, and that will lead to more diagnosed cases and epicenters in the weeks to come. Here are signposts I’m watching to assess how the virus might progress from here:

  • Quarantines. We need to see more quarantines. They are the only thing known to stop the virus from spreading. Unfortunately, so far, many countries have been very slow to enact containment efforts largely because of the economic risks.
  • Number of cases at each virus epicenter. In China, the number of cases peaked after about three to four weeks of extraordinary quarantine efforts. If a similar pattern emerges in other epicenters, it will give us some idea of what to expect as the virus spreads.
  • Evidence of seasonality. If COVID-19 turns out to be a seasonal virus, much like the flu, it could go away by summer. There is currently no evidence of this, but it’s something to watch.
  • New epicenters. I’d like to see at least two to four weeks pass without any new epicenters to be confident that the worst of the virus may be behind us.

Tom Fahey, Co-Director of Macro Strategies

I’m breaking down the potential economic impact of COVID-19 into four categories: the good, the bad, the ugly, and the policy response.

  • The good. China showed that the virus can be contained. Of course, the strict quarantines will likely mean one quarter of little to no growth for China. But the Chinese economy is coming back online, and we hope this pattern repeats in other affected countries.
  • The bad. The virus has spread outside China. In January, our team identified this as our downside scenario—and here we are, with new epicenters around the world. Asset prices have hit the downside price targets we predicted in January, suggesting that markets have now priced in the risk of global spread. Currently, we expect second-quarter growth to slow to almost zero in the US and Europe before rebounding in the second half of the year.
  • The ugly. There is a significant risk that we enter a global recession if the virus is not contained. In my view, the risk of a downturn is the highest it’s been since before the global financial crisis.