We hope you and your families are well. With the recent news headlines and market we are experiencing, we wanted to reach out with an update to let you know that we are monitoring markets closely and share some thoughts.
Global markets have reacted sharply to the coronavirus outbreaks. The coronavirus (known as COVID-19) is a new type of respiratory illness similar to the flu, with a fatality rate of around 2%. It has spread to over 40 countries and more than 80,000 cases of infection have been reported.1 Headline risk continues to be a factor with more cases likely in the U.S. and around the world. There is potential for a slow down in consumer spending and damaged sentiment as supply chains continue to be disrupted. Travel restrictions could also increase and daily life could begin to be impacted.
There has been some progress in combating the virus with quarantines in China beginning to show positive affects. Pharmaceutical companies are also bringing resources to bear, with a potential vaccine being sent to the National Institute of Allergy and Infectious Diseases for testing.2
The coronavirus outbreak has caused a significant amount of volatility in world markets and with the interconnectedness of the modern global supply chain there is concern for large-scale economic setback. The question is if this volatility will be a temporary dip in economic production or if it is more of a catalyst to the backdrop of slowing economies around the world. Several industries and economists have begun reducing revenue and growth estimates, with companies like Microsoft and Apple warning of disruptions to sales and supply chains.3
The current volatility will pass at some point, but for the near-term the uncertainty of the outbreak and struggle for containment of the coronavirus and its potential impact is being priced into the market. Hindsight is always 20/20, but uncertainty at the time often causes selling, and it is not a new phenomenon. Since the market bottom in 2009, this is the 18th time that the S&P is more than 5% off its highs.4 And earlier this week was the 260th time that the S&P 500 fell 2% or more on a single day. Markets have a tendency to recover positively after these drops, and over this period the total return of the index was 1,640%. 5
Epidemics and outbreaks have also been experienced several times in the past. Historically, however, Wall Street’s reaction to such epidemics and fast-moving diseases is often short-lived. Stocks usually are on the mend within months of the fallout from disease outbreaks.6 The S&P experienced marked rises in the period following the outbreaks of SARS in 2003, Avian Flu in 2006, Ebola in 2014, and Zika in 2016.7 Of course, every instance is different and the past is no guarantee of the future.
We urge our clients to continue to be disciplined with investing and not to react with panic to headlines and unfolding events. We will remain diligent in monitoring the markets and our team is here for you should you have any questions, to discuss adjustments that may need to be made to your portfolio or strategy, or just to chat.
5. https://theirrelevantinvestor.com/2020/02/24/what-happens-when-you-buy-the-dip/ https://www.marketwatch.com/story/the-dow-is-off-by-more-than-a-1000-points-and-heading-for-its-second-worst-point-drop-in-its-history-heres-how-the-stock-market-tends-to-perform-afterward-2020-02-24
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