The worst issue to consider in any viral and contagious outbreak is the suffering from illness and the loss of life. As of February 13, 2020, there were more than 60,000 reported cases of the coronavirus and nearly 1,400 deaths from the virus. The ongoing impact is still far too early to predict an outcome with finite data and finite predictions. What is becoming entirely unavoidable is that gross domestic product (GDP) is going to suffer in the first quarter of 2020.

Just referencing GDP may seem broad, but this is a global event now even if it has mostly affected China. There have already been instances where the impact is hitting the United States, in Europe, in Asia, in South America and elsewhere. We have also seen a direct impact on technology companies commenting on how the coronavirus shutdowns have affected or will affect the supply chain. Restaurant chains and retailers have closed stores in China, and trips in and out of China are now all but closed off. Conferences and events are being dropped. This all adds up to a price that will only grow before it gets better.

24/7 Wall St. has used specific research notes, specific corporate news, and specific media reports to show how far and wide the impact of the coronavirus will be.

The Atlanta Fed’s GDPNow forecasting model is far from perfect. Still, the latest estimate on February 7 was for the first-quarter U.S. growth to come in at 2.7% after having been 2.9% just two days earlier. Real personal consumption spending growth and real gross private domestic investment growth were both trimmed as well in that model, and these frankly may need to come down ever further after more of the impact is felt.

China itself is worried. The People’s Bank of China recently added liquidity to the markets and it lowered interest rates to help counter the economic impact of the coronavirus. China’s National Bureau of Statistics just reported that the Consumer Price Index (CPI) for January went up by 5.4% from a year ago. What really stood out was that food prices went up by 20.6%, and the non-food prices increased by 1.6 percent, and meat costs from ongoing issues were shown in there. The agency did not mention the coronavirus nor the cases of African swine flu crushing the pig population nor the avian flu in chickens were cited, and some of the follow-on effects may be felt in February and later months ahead.

Restaurant chains such as McDonald’s, Starbucks and Yum China have all seen waves of store closures in Wuhan and elsewhere around China. Casino traffic in Macau literally fell off a cliff heading into the Chinese Lunar New Year. Apple Inc. (NASDAQ: AAPL) closed its stores in China and one report warned that 1 million iPhone sales may have already been impacted by the coronavirus fallout. The group IDC has warned that Chinese shipments of smartphones could be down 30% in the first quarter.

One of the most recent developments was that the annual GSMA MWC (the Mobile World Conference) in Barcelona, Spain, was called off. The statement cited the global concern regarding the coronavirus outbreak, travel concern and other circumstances all making it impossible for the GSMA to hold the event. Almost every semiconductor company has made reference to the coronavirus and has signaled how its supply chain (or direct manufacturing operations in China) could or would be affected by the coronavirus.

Hasbro Inc. (NASDAQ: HAS) warned of toy production halts or delays. Nu Skin Enterprises Inc. (NYSE: NUS) shares were down sharply after its results and guidance are being hit by the coronavirus, and it has placed a temporary hold on all physical meetings with its sales force and customers in China. This was echoed by other companies in the same sector, as well as those with retail operations, a week earlier.

Clothing can and will feel the impact. China is the source of manufacturing for many apparel makers. PVH Corp. (NYSE: PVH) announced this week that the majority of Calvin Klein and Tommy Hilfiger stores in China are closed for the time being. Ralph Lauren Corp. (NYSE: RL) outlined how its revenue and income will see a slight impact from the coronavirus as well with two-thirds of its Chinese stores closed. Ralph Lauren also warned that its estimates could get worse.

Life insurance and related operations could take a hit as well, with some of the reasons like premature deaths being those most obvious. China Life Insurance Company Ltd. (NYSE: LFC) has seen its U.S.-listed ADSs fall from $14.50 before the coronavirus down to $12.50 on last look. That is still not a 52-week low, but it was down 10% for the year. Even the firm Sun Life Financial Inc. (NYSE: SLF) warned that mortality claims could rise in a “material way” if the coronavirus situation were to deteriorate rapidly and that the coronavirus would act as a headwind in Asia. Manulife Financial Corporation (NYSE: MFC) was pointed out by a Credit Suisse report as having 40% of core earnings coming from Asia and that the adverse impact of the coronavirus “remains very uncertain and has not yet been reflected in Manulife’s results.”

There are other independent reports and media reports showing specific instances of harm where China and outside nations will be facing pressure in the first quarter. All of this is likely to see a snap-back once the effects of the coronavirus come to pass. That may be part of the explanation of why U.S. stocks just hit all-time highs in the Dow Jones industrials, S&P 500 and Nasdaq all over again.

A report from the South China Morning Post reported that the falling fiscal revenues of 2019 will restrict Beijing’s ability to boost spending in 2020 to maintain stronger growth targets amid the coronavirus outbreak. It noted that China’s fiscal revenue growth of just 3.8% in 2019 (down from 6.2% in 2018) was the slowest growth rate since 1987 — and that data covered a period that was pre-coronavirus. Another fresh report from the site AsiaTimes.com warns that millions of small businesses are now at risk in China as well.

Capital Economics has an ongoing update on the impact that the coronavirus is having on China and elsewhere. They showed charts and graphs covering road congestion (or lack of it), daily passenger traffic, passenger transport volume, coal consumption, property sales, wholesale food prices, overseas tourist spending and even supply chain issues.

There have been two fresh outlook changes covering the oil and gas trends for supply and demand in 2020 showing these are being hurt by the coronavirus. The International Energy Agency (IEA) cut its first-quarter forecast by 435,000 barrels a day and its full-year forecast by 385,000 barrels a day to 565,000 barrels and 825,000 barrels, respectively. The U.S. Energy Information Administration (EIA) showed that its new forecast is 900,000 barrels per day lower than its short-term forecast issued just a month earlier, citing the ongoing and growing effects of the coronavirus and also above-normal January temperatures over much of the northern hemisphere.

Fitch Ratings warned that the coronavirus adds to the structural troubles of the global automakers. With China now the largest car market on the globe, Fitch expects China car sales to dip until the virus outbreak is under control and expects that sales should start recovering from April forward into the second half of 2020.

Fitch also warned that sovereign and corporate issuers in South America would feel the coronavirus pressure. That warning was calling for slower Chinese demand and commodity price weakness from the coronavirus will hit South America’s issuers due to their high commodity export dependence and direct trade exposure to China. That report said:

Agriculture, mining and fuel shipments represent a material percentage of GDP for many Latin American countries and revenue for the region’s largest exporters with China being a key destination. More than 25% of Chile’s, Peru’s and Brazil’s merchandise exports go to China, according to International Monetary Fund Direction of Trade Statistics, and the ability to quickly redirect commodity exports to other countries will be a challenge. … Prior to the outbreak, our outlook for Latin America was for a mild economic recovery with fiscal, political and governability risks challenging the region’s economy and ratings in 2020. Coronavirus introduces a new downside risk to growth expectations… Prices for copper, aluminum, iron ore, zinc and oil noticeably declined after the coronavirus outbreak, which led to aggressive government restrictions on travel and other economic activities.

S&P Global has pointed out how the coronavirus is dashing the hopes for the global auto trends at this time as well. As of February 11, S&P’s assumption was that the coronavirus outbreak will be contained in March. The group also suggested that U.S. GDP growth would drop to roughly 1% in the first quarter. S&P’s Beth Ann Bovino was recently quoted:

We expect most of the drag on U.S. growth to be in the first quarter, with a smaller hit in the second quarter and a rebound in the latter half…. Along with the potentially devastating human toll, if the virus spreads further and lasts longer, the impact on virtually every economy could be far worse… We will be watching the numbers on the health of the U.S. economy, determining whether, and by how much, the coronavirus infects investment demand and consumer spending.

Moody’s recently signaled that the Chinese retail, travel and transportation sectors are among the most exposed to disruptions from the coronavirus. Two other prior Moody’s reports in recent days signaled that an extended coronavirus outbreak would increase demand for U.S. health care companies but with a warning that it could disrupt supply chains, as well as that a prolonged outbreak of the coronavirus will end up hurting banks’ profitability and asset quality in the Asia-Pacific region. Moody’s even warned that national property sales in China are likely to fall slightly in 2020 (and will weaken developers’ liquidity) against the backdrop of the coronavirus outbreak.

Cruises, which have been notorious for acting as Petri dishes for spreading illnesses, are getting hit. The Diamond Princess under quarantine in Japan and the MS Westerdam being turned away by five countries without having any suspected coronavirus cases has more than 1,400 people stuck with nowhere to go. A group called Thinknum has released alternative data on the cruise line industry showing how the spread of the coronavirus is affecting cruise line pricing and inventory. It pointed out data for Carnival Cruise Lines (NYSE: CCL) showing a real recent rise inventory of available rooms. Airlines have already felt the heat from the coronavirus and many flights in and out of China were simply canceled for the time being.

Federal Reserve Chair Jerome Powell said that trade issues have abated, but he more or less suggested that the FOMC is ready to inject more liquidity into the markets if the economy worsens. In his semi-annual testimony to Congress on monetary policy, Powell said:

Some of the uncertainties around trade have diminished recently, but risks to the outlook remain. In particular, we are closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy.

U.S. inflation (CPI) was released this week showing that nominal inflation was up 2.5% and the core reading (excluding food and energy) was up 2.3% in January. While those are not red-line inflationary numbers, the novel coronavirus might bring added problems as supply chains get interrupted and businesses begin to pay more for stockpiled items. It remains to be seen if hard commodity prices and energy prices remain subdued due to the coronavirus. If those start to heat back up, particularly if they heat up because of supply interruptions and periodic demand spikes, inflation could become a worry again and that might create a rising interest rate climate all over again.

The timing of the outbreak was also as bad as it could be considering that the United States and China signed their phase-one trade deal in January. Shipping, freight and port activity was supposed to start picking back up. That recovery has been affected. A decline in international shipping rates is being magnified by a drop in Chinese demand.

Ed Yardeni, of Yardeni Research, said in his latest outlook:

It’s too soon to tell whether the virus outbreak is starting to weigh on S&P 500 revenues and earnings… Nevertheless, industry analysts may have just started to cut their Q1-Q3 earnings estimates during the 2/6 week to reflect the possible negative consequences of the virus on the companies they follow. They seem to be doing their best to offset those cuts by boosting their Q4 estimates, by which time the virus problem should have passed, in their collective estimation.

Again, the end result of how much GDP will be hurt is still not known. The coronavirus has already surpassed SARS and other health scares. The U.S. stock market is trying to look through the current pitfalls to determine that the future is still bright and that the current concerns will go away soon.

Sadly, there is a fresh reminder that things may get worse before they get better in the number of reported cases and the number of deaths. Companies like Gilead Sciences Inc. (NASDAQ: GILD) and Moderna Inc. (NASDAQ: MRNA), and a slew of tiny virus/vaccine stocks, have all seen gains tied to working on vaccines. There was a stark reminder from Johnson & Johnson (NYSE: JNJ) about just how fast a “cure” will really take. Johnson & Johnson has initiated efforts to develop a vaccine against COVID-19 and is leveraging its AdVac and PER.C6 technologies, but the company noted that it would expect to be able to get a potential vaccine in Phase I clinical trials in 8 months to 12 months if not expedited.

Think about what has been detailed and referenced here in the economy. Smartphones and semiconductors, food prices, travel, retail trade, factory closures, workers not going to work, car sales and supplies taking a hit, commodity prices at risk. Think about bank profits and insurance losses, and think about what happens when and if “force majeure” starts to be declared for endless deliveries and pricing terms which had already been agreed to.  It all adds up to a rather large yet undefined cost, and it will come at a price against global GDP in the first quarter of 2020 with the rest of the year in a “wait-and-see” mode.

Even with all these concerns brewing, the one word you haven’t yet seen is “recession.” It’s currently too soon to be calling for that and the cards were being set up for expansion in 2020 just three weeks ago.

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