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Photo: Anthony Wallace/AFP via Getty Images

Worries are growing that the economic impact from the novel coronavirus outbreak will be worse than expected and that markets are being too complacent in factoring it in as a risk.

What's happening: The number of confirmed cases has already far outpaced expectations and even those reports are being viewed through a lens of suspicion that the Chinese government is underreporting the figures.

  • Yet, U.S. stock indexes have continued to hit all-time highs, bond spreads remain compressed, and even some Asian bourses have recouped losses that followed the initial coronavirus headlines.

Driving the news: Of the 364 companies that have held Q4 earnings calls, 138 cited the term “coronavirus” during the call, and about 25% of those included some impact from the coronavirus or modified guidance due to the virus, according to FactSet.

  • Apple was the latest, saying Monday it would not meet quarterly revenue expectations due to limited iPhone production and Chinese demand.

What they're saying: "This will eventually end badly. I have never in my career seen anything as crazy as what’s going on right now," Scott Minerd, global CIO of Guggenheim Investments, writes in a note. "The cognitive dissonance in the credit market is stunning."

He's not alone: "The ramp up in China will take much longer than many expect because of the need to prevent a secondary flare up in contagion," Diane Swonk, chief economist at Grant Thornton, said on Twitter.

The state of play: "By most estimates, if the Chinese extend the lunar new year by two weeks it would not meaningfully impact the global supply chain, but if it went beyond two weeks then we would start to see problems for materials and consumer goods outside of China," Minerd argues.

Between the lines: It's been about two weeks and things don't look great.

  • Hong Kong, already coping with the economic damage from its months-long protests, now is facing wide-ranging shortages of basic household and cooking supplies.
  • High-tech industrial parks in Chinese manufacturing hubs like Shenzhen have just reopened but are facing a "severe" worker shortage, as many are stuck in their hometowns and factories remain idle.

Details: Minerd predicts that the "impact of all this on corporate profits and free cash flow will be dramatic," warning that China's first quarter GDP could fall as low as -6% annualized in the first quarter and oil could drop to $25 a barrel.

The bottom line: "We are either moving into a completely new paradigm, or the speculative energy in the market is incredibly out of control," Minerd says.

  • "I think it is the latter. I have said before that we have entered the silly season, but I stand corrected. We are in the ludicrous season."

Go deeper: Apple will miss quarterly earnings estimates due to coronavirus

Go deeper

39 mins ago - Sports

Jill Biden cheers on Team USA at Tokyo Olympics

Jill Biden congratulates U.S. women 3x3 basketball team after the first round 3x3 basketball match. Photo: Mustafa Yalcin/Anadolu Agency via Getty Images

First lady Jill Biden attended three Olympic events on Saturday and hosted a watch party at the U.S. Embassy for the Team USA-Mexico softball game.

Driving the news: On her first day as a spectator at the Games, Biden attended a women's 3x3 basketball game, cheered on American swimmers during preliminary heats and caught the second half of the U.S. women's soccer game against New Zealand.

49 mins ago - Sports

Team USA closes out Day 1 of Summer Olympics with no medals

Eli Dershwitz of Team United States reacts in his men’s sabre individual bout against Junghwan Kim of Korea of the fencing on day one of the Tokyo 2020 Olympic Games. Photo: Elsa / Getty Images

Team USA concluded the first official day of competition at the Tokyo Olympics on Saturday without winning a single medal despite several close contests.

Why it matters: Olympic historian Bill Mallon noted that this was the first time the United States did not receive any medals on Day 1 of the Summer Olympics since Munich in 1972.

G20 coal impasse previews fraught UN climate summit

A man tends to vegetables in a field as emissions rise from nearby cooling towers of a coal-fired power station in Tongling, Anhui province, China, Jan. 16, 2019. (Qilai Shen/Bloomberg via Getty Images)

G20 environment ministers ended talks without agreeing to phase out domestic coal-fired power generation and funding for such plants abroad, a deadlock that foreshadows difficult negotiations looming for this fall's critical climate summit.

Driving the news: Officials who met in Naples, Italy, on Thursday and Friday could not find consensus language on the use and financing of the most carbon-emitting fuel.

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