If you look at labels on most manufactured consumer goods, it might read: “Made in China” and if the Coronavirus were to wear a label, it would have the same message. However, today, on news that the virus had been exported to other parts of the world, panic-stricken investors sold stocks with both hands sending the Dow Jones Industrial Average down 1,031 points or 3.56% while the S&P 500 Index got clipped 3.35% and the tech-heavy Nasdaq got walloped 3.75%.
While investors were weighing the potential global impact of the virus, US markets have shown great resilience as domestic indexes ascended to all-time highs on literally a daily basis – until today. Now that the virus has popped up in Italy and South Korea, fears of contagion and pandemic are emerging. So, is it time to panic?
Well, we all know that panic is not a strategy and using emotion when making investment decisions is about as practical as a surgeon who’s drinking on the job. When the markets are nervous and rattled, as investors, we need to keep a steady hand and a cool head.
Before going on, I would like give condolences to those who have lost loved ones to this terrible virus. When writing to clients about how their money should be handled as a deadly illness roams the world and is taking lives, I (and all of Capstone) don’t want be insensitive with regard to the human element at hand here.
Now, I think that it is way too soon to tell what impact this virus can have on markets and on the global economy as a whole…Using history as a guide, 12 months after the first case of the 2003 SARS outbreak, the S&P 500 posted a gain of 20.76%, according to Dow Jones Market Data. Will we repeat that this time around? Well, the severity of the virus will determine the market’s reaction and just because the market shrugged off the SARS contagion doesn’t mean that it will be the case this time around. We should definitely not draw conclusions about the effect that a pandemic can have on the markets. For one, this particular outbreak occurred during the Lunar New Year at a time when travel is at peak levels in Asia leaving some analysts fearing that more people could be affected than were in past outbreaks.
One thing is for sure though, this couldn’t have come at a worse time for the struggling Chinese economy which, according to GDP figures released last week, is at its slowest growth rate in decades. Meanwhile, on the US economic front, we’re still doing fine. Our recent trade deal with Mexico and Canada has added some fuel to the economic fire here in the states, relations with China itself, despite current conditions, is relatively stronger economically than it’s been for many years, we have more clarity about “Brexit” and how trade will be impacted there, we have very low unemployment, wages are rising, and the almighty US consumer continues to spend and flourish.
An epidemic like this can extinguish all of that though, right? If it resembles the Spanish Flu, then yes, but if you believe (like I do) that modern science and quarantine techniques can eventually put the virus in check, this crisis will ultimately fade and we can move on.
Over the last year or so, I have been beating the drum to clients and investors that caution in the markets should be observed. In fact, over the last 6 months or so, the advisors at Capstone have been cutting back risk in client portfolios and bagging profits from the incredible run in stocks. The markets, even after today’s bludgeoning, are pricey, valuations are looking stretched, and fears of a “recession countdown” still remain.
Nobody can say for sure whether Coronavirus will do enough economic damage to send the globe into recession, but as people opt for their couch and a Netflix binge, rather than dinner and a movie in the theater, investors should be worried and paying attention to their portfolio allocation. If you are not a client of Capstone and aren’t confident that your portfolio is invested properly, it’s not too late. We can provide you with a no-cost, no-obligation risk assessment of your investment portfolio…So give us a call for a fresh look. We can be reached at 888-587-7526 (Toll Free) or (570) 587-7800 (Direct).
Always remember, trees don’t grow to the sky and your portfolio can use a little pruning now and again to ensure long-term investment success and a better retirement outcome.
(The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.)