A Chinese economic slowdown would ripple throughout global markets, but the impact on the US would be relatively small. | Source: ING Goldman Sachs agrees . At least over the long term.
But the U.S. economy’s relative strength isn’t why Cumberland sees the coronavirus outbreak as a buying opportunity.
Citing commentary from Steve Wasserman, Cumberland Chairman and CIO David Kotok suggests that the damage to China and other Asian economies makes the US stock market look a lot more bullish.
It is clear that the US will not be materially at risk and the CDC and all US health agencies are all over this … So the panic in the market will pass, China will be very badly impacted and emerging markets will get crushed as China materially slows buying commodities until this passes and business gets back up and running.
There are a lot of US companies that do not do business in China nor in nearby countries. They will be fine. Treat the collapse in stock prices as a major buy opportunity.
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- The epidemic will force central banks to keep interest rates low.
- “Easy money” favors stocks over other assets.
- The fallout from the outbreak will make the U.S. stock market the only game in town.
Cumberland is putting its money where its mouth is. Kotok says the firm has “lowered our cash reserves” and begun “scaling into the U.S. stock market ”throughout the recent pullback.
Stock Market Bulls Must Stomach One Major Risk
But this investment thesis has one major downside risk. It assumes that coronavirus remains a nonfactor within the United States.
Only US cases have been identified to date, but
former FDA Commissioner Scott Gottlieb has repeatedly warned Americans to brace for a full-scale outbreak.
Speaking on CNBC, Gottlieb said he expects the virus to reach “pandemic” proportions . There will be U.S. outbreaks – that’s not up for debate. But the government’s response will determine how catastrophic those outbreaks become.
“I think it likely will [become a pandemic] at this point. We will have outbreaks here in the United States, ”Gottlieb said. “Now, a small outbreak doesn’t need to become a large outbreak, a large outbreak doesn’t need to become an epidemic here in the United States. There’s things we can do, but we’re going to need to change our posture. ”
This article was edited by Sam Bourgi .
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