Last week’s swift stock market selloff, driven by the coronavirus, raises the question of whether it is time to act on Warren Buffett’s adage to be greedy when others are fearful. But there is mixed opinion on whether there is enough fear in the market yet to do so, especially as the number of confirmed cases of novel coronavirus has increased more rapidly outside of China.

Central bankers globally have come out in recent days to show they are ready to step in to help. China, for example, offered a lifeline to companies struggling with the fallout from the virus by allowing them to delay loan payments. The Bank of Japan said overnight it is fully prepared to act to mitigate the impact of the virus. Last week the Federal Reserve opened the door to an interest-rate cut—and markets began pricing in a cut—though it is unclear how much such stimulus can do to weaken the fallout from the outbreak.

Many strategists have been cautious, even as they suspected a buying opportunity was nearing. And that has been reflected in recent market action, with the S&P 500 up 1.5% late Monday morning at 2997.38. In a note to clients, Gavekal Research’s Anatole Kaletsky writes that technical analysis and relatively calm investor sentiment suggest stocks may have further to decline before finding support that sticks. Kaletsky said the threat from the outbreak is probably overstated and that the stimulus from global central banks will “eventually far outweigh the effects on asset values of a temporary economic collapse.” Still, it may be too early for investors to add risk to their portfolios.

Another reason for caution: The number of confirmed cases is likely to rise as more widespread testing is implemented across the U.S., for example. Once the U.S. begins to publish that test data this week, market panic could climax, suggesting conditions are converging in a way that means investors should prepare to buy the dip, Kaletsky says. Just not yet.

Pimco’s U.S. economist Tiffany Wilding writes on the company’s blog that if the flu is any guide, the coronavirus should begin to fade into the summer and activity and growth should return to normal over time. But with the situation still in flux and much still unknown, Pimco cautions against rushing in just yet to take risk.

Wolfe Research’s Chris Senyek offered six signs he was waiting for:

• Longer-term technical factors become deeply oversold. While shorter-term indicators like relative strength appear washed out, Wolfe says longer-term metrics aren’t quite there.

• The daily new infection rate outside of China from the virus, known as Covid-19, peaks. Currently, the rate appears to be still accelerating, Senyek says.

• For U.S. stocks to rebound, Senyek says investors will need to get a sign that community spread in the U.S. is contained. That doesn’t look like it is near as a second person died in the U.S. from the virus with no clear path to exposure. “It appears the negative news flow on this front has only started and is likely to worsen, potentially dramatically, in the weeks ahead,” Senyek writes.

• While coronavirus is getting all the attention, it could also affect the coming presidential election. Senyek says the outbreak decreases President Donald Trump’s re-election chances—and with Bernie Sanders possibly winning the Democratic nomination, it could compound the near-term downside risk.

• Investors’ faith in central bankers’ ability to save the day has been shaken in the last week as the outbreak has spread. Senyek expects “substantial” fiscal and monetary easing globally, with the stimulus helping economic growth and stocks once the infection rate outside of China peaks. But for now, faith in policy makers hasn’t returned, he adds.

The takeaway: Get ready for that buying opportunity—it just may not be here yet. In a separate note, DataTrek Research co-founder Nicholas Colas says he is still on “crash watch,” looking for a more than 5% decline as a possible entry for U.S. equities. “Tread lightly,” he writes. “But remain open to buying a truly bad close.”

Those looking beyond the next couple of weeks are also beginning to consider about where they want to go back in and buy. The impact of the virus is likely to have longer-term impacts that could meaningfully affect profitability—as companies try to make up for lost time—and consumer behavior, which could change prospects for any number of companies.



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