Community spread of the COVID-19 coronavirus, defined as the infection of a person without travel to a country like China or contact with someone who returned from one of the affected countries was confirmed last week in California and in the Pacific Northwest. Despite all the news from mainland China, Hong Kong, Iran and Italy, it does not look like the U.S. was very well prepared. In the first California case of community spread, the hospital in Sacramento requested a COVID-19 test from the CDC but was denied the test and the infection was only confirmed after testing was done several days later.
Community spread was a wake up call to local and federal agencies as well as the U.S. stock market. A 50 basis point rate cut from the fed also did not appear to ease fears as the market battled with both the risk of a highly infectious disease and a Bernie Sanders presidency. With Joe Biden taking the lead on Super Tuesday with an estimated 566 delegates (1,991 needed to win the nomination), the market rebounded strongly as at least one of the two key perceived risks appeared to abate.
For me, the canary in the coal mine regarding COVID-19 was when British Airways stopped all flights to mainland China in late January and United and Delta followed suit by the end of the same week. Cutting flights to the second largest economy in the world is not an action taken lightly and I can only imagine the kinds of scenarios the risk management teams of these companies considered before deciding on this course of action. I wrote the following in one of the insider weekends posts on February 9th,
“With the novel coronavirus risk continuing to unfold, I am surprised insiders were not selling even more. Beyond the direct impact to the second largest economy in the world, we are now starting to see second order effects due to the impact on the global supply-chain. It was not surprising to hear that a large number of car manufacturers had extended factory closures in China but the second order effects became evident when Hyundai suspended car production in South Korea due to a shortage of parts.
For those that were invested during the SARS pandemic and the Ebola epidemic, it may seem like we will get through this one relative unscathed just like we did the last ones but it is probably a good idea to take risk down a notch or buy some protection in case the infection continues to spread across the globe.”