Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief

U.S. Equity Strategies for Morgan Stanley. A lot with my colleagues bringing you a variety

of perspectives, I'll be talking about the latest trends in the financial

marketplace. It's Monday, February 3rd at 9 a.m. Eastern, so let's get after. In the

past few weeks, global markets have been overtaken by the coronavirus that broke out in China this month.

Obviously this is a serious health concern and while the path it takes from here is very much

an unknown, one thing we do know is that markets were not prepared for it.

As we've been discussing for the past few weeks equity do know is that markets were not prepared for it.

As we've been discussing for the past few weeks, equity markets have become so over-bought

and volatility so low, it was almost inevitable we would have a correction.

The question was, what would cause it? It appears we may now have the answer.

In addition to the obvious statement about over-bought conditions and record low volatility,

prices had become disconnected from the fundamentals over the past few months.

More specifically, while there have been some signs of... disconnected from the fundamentals over the past few months.

More specifically, while there have been some signs of economic growth bottoming, those signals

have been more of the soft variety, things like surveys and confidence measures about

the future, which are very linked to the stock market.

Hard data like actual orders and activity have remained more elusive thus far.

In short, markets have moved ahead of the fundamentals which they often do.

However, as we have shown in our research, the gap

between the move in prices relative to the turn in the fundamentals had reached

unprecedented levels recently. Second, while our economists have been calling

...