It has been a wild night in Iowa, and the coronavirus death toll is not slowing.
But stock markets are ready to rip higher, led by Chinese equities, as optimism over that big cash injection by the People’s Bank of China and upbeat U.S. data on Monday are carrying over.
Neil Wilson, Markets.com’s chief market analyst, says if markets get through the rest of the week without a big escalation in Europe or U.S. coronavirus cases, then stocks will be in fighting mode — with the Dow reaching for 29,000 and the S&P 500 aiming at 3,300.
“We are entering a key phase of the outbreak now in terms of how we measure the economic damage and whether it produces a material reduction in equity valuations,” Wilson tells clients.
Meanwhile, politics is grabbing attention this morning as Iowa’s Democratic presidential caucuses — the party’s first nominating contest for the 2020 election — turned into a hot mess after problems with a mobile app.
Onto our call of the day, which checks in with what’s on the worry list at hedge fund Third Point LLC and manager Dan Loeb from the recently released fourth-quarter newsletter.
Loeb lays out what could change the bullish mood for stocks, which has been driven by friendly monetary conditions and a benign economic backdrop.
“We are wary of many factors that can possibly upset the current Goldilocks environment, chief among them the further spread of the coronavirus, derailment of further Chinese trade negotiations, a political upset from the far left in the U.S. Presidential election, or further escalation of tensions in the Middle East,” Loeb says.
The hedge fund has one more concern: “The Fed has said it would be patiently waiting for inflation to overshoot, which makes the current case for equities compelling, but a sudden turn in inflation could lead to a backup in rates and cause market pain.”
As for that potential political upset, a far-left candidate likely refers to Massachusetts Sen. Elizabeth Warren or Vermont’s Bernie Sanders, who has been leading in the polls. Some analysts have said investors aren’t thinking enough about a possible Sanders win.
Read Third Point’s full thoughts here.
This article originally appeared on MarketWatch.
