Ralph Acampora, who is considered a pioneer in the development of market analytics, believes that coronavirus concerns will trigger a 10 percent stock market plunge.
“The market itself was stretched, which is true, so we were begging for some kind of correction and this is the catalyst,” Acampora told MarketWatch during a Friday interview. “I think it’s going to be a little deeper. I am looking at 10% maybe a little bit more even.”
Indeed stocks are overvalued and quite vulnerable to macroeconomic variables and systemic weaknesses. In fact, on the overvaluation side of things, the popular price-to-earnings (P/E) measure-shows the S&P 500 index currently trading at more than 24x forward earnings, nearly 10 points above the average ratio of the past ten years. But an equally, if not more worrisome factor, is the market’s mounting concerns over the spread of coronavirus outbreak which is set to become a pandemic. More than 360 deaths and over 17,400 cases have been confirmed in mainland China alone, China’s National Health Commission reported Monday.
Campora also said it’s “going to get a lot worse before it’s over and that [the virus outbreak] will slow economic growth in China”.
We totally agree with Campora’s assessment. But at this point, it’s fair to say that the probability of the coronavirus causing a fundamental shock to China’s economy is quite high. In fact, China’s CSI 300 index of Shanghai and Shenzhen-listed equities plunged more than 9% on Monday, as Mainland markets reopened for first session since Jan. 23. The drop, which wasn’t as bad as it could have been thanks to a cash injection of $173 billion from the People’s Bank of China, was the biggest since 2015 bubble burst, according to Bloomberg.
With all that said, Acampora remains positive on equities in the medium term. He sees the Dow hitting 30,000, but he says stock prices will fluctuate within a tight range as the 2020 presidential election starts to take shape on the Democratic side.
“I’m not negative [on the stock market], if you’ve got cash and are looking to get in this [market], this is an opportunity,” he said.
As of this writing, the Dow’s implied Monday open is green 174 points. The index closed down 603 points to 28,256 during Friday’s regular session as the S&P 500 and Nasdaq dropped 58.14 and 147.99 to 3,225.52 and 9,150.94, respectively.