Warning: Top Economist says Not to Buy the Dip

There’s plenty of chaos in the markets.

All thanks to the coronavirus that’s now gone global. 

At the moment, there are 17,489 cases with 362 deaths.  South Korea just confirmed its first human to human transmission. Hong Kong is warning of surgical mask shortages.  Russia closed its border to China. Up to 6,000 people were just quarantined on a Italian cruise ship.  

The Philippines also just reported its first death outside of China.

Three new cases in California just pushed the number of U.S. infections to 11.

The World Health Organization declared the virus a public health emergency of international concern.  “The main reason for this declaration is not because of what is happening in China, but because of what is happening in other countries,” WHO Director-General Tedros Adhanom Ghebreyesus said as quoted by CNN. 

“Our greatest concern is the potential for the virus to spread to countries with weaker health systems, and which are ill-prepared to deal with it,” he added.

As the story has intensified, fear has rippled through markets.  

Investors are Now Buying the Excessive Fear, However…

While markets are skyrocketing early Monday, economist Mohamed El-Erian is warning investors not to buy the dip.  All on concerns the virus will take a major toll on China’s economy and dent global growth. “For a long time I though the market sentiment was so strong that we could overcome a mounting list of economic uncertainty,” El-Erian told CNBC. 

“But the coronavirus is different. It’s going to paralyze China. It’s going to cascade throughout the global economy,” he added.  “Importantly, it cannot be countered by central bank policy. We should pay more attention to this. And we should try and resist our inclination to buy the dip.”

Still, some strategists are still sticking by their 2020 market forecasts…

Major financial analysts are still sticking by their bullish year-end forecasts, despite the virus.

All view the China virus story as short-term risk rather than a threat that could derail the bull market.  “The virus development should not derail the recovery,” Mike Wilson, Morgan Stanley’s head of U.S. equity strategy, said as quoted by CNBC. “We continue to think this correction will be contained to 5% in the S&P 500…There is strong support at 3100 on the S&P 500 both technically and from a valuation standpoint.”