When it comes to the Covid-19 coronavirus, sentiment over the potential for a global pandemic is in many ways just as important as the actual outbreak itself.  After all, if consumers fear an imminent outbreak they will be more likely to curtail activity even before the onset of any spread. To that end, tracking search activity can provide a decent read into where sentiment regarding the coronavirus is now versus where it has been in the past.  If people are worried about the coronavirus, they will be more likely to search for news and information on it.

On a global basis, search trends for ‘coronavirus’ peaked at the end of January and trended lower throughout February, but with recent news over the spread of the virus outside China, search activity began to rocket higher over the weekend and has been rising ever since. Just today, search trends topped their highs from late January, indicating that people are increasingly on edge.

One of the primary drivers for the increased concerns over the coronavirus was the spread in Italy over the weekend, and search data for the term in Italy really went parabolic in the last four days (second chart). While global searches for the term are only slightly above their January peak, searches in Italy are four times greater than they were at the end of January.

In the US, search trends for ‘coronavirus’ (third chart) have also started to move higher in the last few days.  While search trends in Italy are more than four times the level they were at in late January, search trends in the US are still less than half of the level they were in late January.  Now, if the US starts to see an increase in the number of confirmed cases in the coming days/weeks (not unlikely), it is highly likely that search volume here will also surge, but at this point, Americans have been relatively sanguine.  Only time will tell if that is the right attitude or not.  Get Bespoke’s most actionable ideas and analysis with a Bespoke Premium membership.  Click here to start a two-week free trial.

Risk assets are selling off in dramatic fashion today as the major indices are all down well over 3%. These declines have led the dividend yield on the S&P 500 to jump over 5 bps since Friday.  Now at 1.94%, the S&P 500’s dividend yield is at its highest level since late October 2019.

Meanwhile, Treasury yields are cratering with the 10-Year down over 10 bps.  That is the largest one-day decline in the 10-Year yield since August 14th of last year when it fell 12.43 bps.  That brings the yield down to 1.37%, which is the lowest level since July 2016.

Going further out on the curve, the yield on the 30-Year Treasury bond is now at a record low of 1.82%.  Similar to the 10 Year, that is nearly a 10 basis point decline from Friday.

Given these moves, holding constant the difference in risks associated with the two assets, the spread between the S&P 500’s dividend yield is higher than the 10-Year yield by its widest margin since September of 2016 at 0.575, eclipsing the previous high from last August.  Prior to 2016, the spread was higher throughout much of 2012.

The spread between the S&P 500’s dividend yield and the 30-Year Treasury, on the other hand, is at its highest level in over a decade.  The spread now stands at 0.119 which is the widest the spread has been since January 2009, and is favoring stocks (positive spread) for the first time since September.  Unlike the spread between the S&P 500’s dividend yield and the 10-Year yield which has flipped back and forth between favoring stocks and Treasuries over the past decade, the 30-Year yield has much more consistently favored bonds. In fact, outside of today and briefly last September, the only other time we’ve seen a positive spread was in 2016.  Get Bespoke’s most actionable ideas and analysis with a Bespoke Premium membership.  Click here to start a two-week free trial.

With risk assets sharply lower this morning, investors have flocked to safe havens. Treasuries are now at or near record-low yields and gold is up well over 2%. For the Gold ETF (GLD), today’s gap of 2.46% is the first gap up of 2% or more since November 9th, 2016; the day after the 2016 presidential election.  Since the ETF first began trading in 2004, there have been a total of 57 days (including today and that 2016 occurrence) in which GLD has gapped up 2% or more.  A little less than half (44%) of those occurrences happened during the last recession from December 2007 through June 2009. Otherwise, as shown in the chart below, these gaps have been fairly spread out without any obvious tendency to mark major tops or bottoms for the yellow metal.

Today’s gap of 2.46% is just about in line with the size of past gaps up larger than 2%.  As for the rest of the day, these types of large moves at the open have not led to much further buying from open to close with an average gain of only 4 bps. GLD also only rises from open to close around half of the time.  As for one week later, GLD has only been higher 48.2% of the time. Granted, the size of those pullbacks have not eaten into the gap up much with an average decline of just 11 bps (median is a 9 bps decline).  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Of all the trends swirling around in the market this morning, the performance of US and Chinese equities relative to their YTD highs has to be one of the more surprising ones.  Based on where equity futures are trading this morning, the S&P 500 would be down 3.91% from its YTD highs earlier this month while the Nasdaq would be down over 5%.  So how much is the Chinese market down?  Barely more than 3%. Just for reference, there have been a total of more than 75,000 coronavirus cases in China so far, including more than 500 today.  So far in the US, there have been a total of 35 confirmed cases.  Today, with the S&P 500 set to open down more than 2.5%, China’s Shanghai Composite fell just 0.28% on the day. Start a two-week free trial to Bespoke Institutional to access our full research suite including all of our interactive tools.