Fast and Furious and the Coronavirus

It’s no secret that the fear over the Coronavirus has added to the volatility of the stock markets over the past week, and the correction has been fast and furious, the steepest decline in the shortest amount of time ever. The stock markets are resilient, but it feels different because of the uncertainty surrounding this emotional virus.

The unknown dynamics of the Coronavirus and how it has crippled China’s workflow which in turn halted supply chains around the globe along with how so many other industries are being affected makes us wonder if the world’s economies will feel the effects of a slowdown over the next few months. If so, then we may see this correction last longer than we would like, history has shown the stock market has always recovered from any and all events that caused a correction or bear market and they will recover from this.

There are currently more than 80,000 confirmed cases worldwide with more than 60 cases in the US and over 2,700 deaths worldwide with none in the US from the COVID-19 outbreak.

One death is too many, but to put that number into a little bit of perspective, according to the World Health Organization, in the United States alone for the 2019-2020 season, there have been at least 15 million flu illnesses, 140,000 hospitalizations and 8,200 deaths. Imagine if everyone with an internet connection followed the spread of this annual flu, case by case, hour by hour.

Not to make light of the Coronavirus, but it pales in comparison to the Flu; however, until there is a vaccine or the number of cases subsides the markets will be fearful.

From a macro-economic point of view, the real question is how this will impact the US economy over the coming year. The US started the year with solid economic data, and we believe the fundamentals of the US economy are still strong, but we need confirmation from first quarter corporate earnings which will be released in in April along with other reports on the economy to know for sure.

Are the markets overreacting and is it a buying opportunity? We would recommend for investors with cash to wait before investing just yet until there are more answers surrounding this virus. For those wondering how this compares to other outbreaks over a 38-day trading period during the height of the SARS virus back in 2003, the S&P 500 index fell by 12.8%. During the Zika virus, which occurred at the end of 2015 and into 2016 the market fell by 12.9%. There are other examples, but they all passed, and the market recovered and hit new highs. As I pen this the S&P 500 is off approximately 12% from its high in six trading days and it’s the fastest correction investors have ever seen.

We believe, just like all the other viruses we have seen over the past decades that have dissipated, the Coronavirus will be no different. Some have suggested that the 1918 Spanish Flu, which killed hundreds of thousands in the US could happen again. No one knows, but 2020 is not 1918. Technology and news move much faster and the US rebounded from the Spanish Flu when all was said and done. We suspect that any drop in earnings or economic activity will be short-lived, and more than made up for in the year to come.

Don’t panic, stay invested is our motto but for those that are panicking, taking risk off the table can be comforting now. Any loss is on paper until one sells; then it’s real and when the markets reverse course, for investors who sell out of the market, they will miss out on the bounce off the lows.

For now, spring can’t come fast enough as warmer weather is usually the best medicine for flu-like symptoms. In the meantime, stay healthy, wash your hands and don’t shake hands, give an elbow bump like I do. ?

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This article was featured in the Saratogian on February, 29, 2020. You can also view Steven Bouchey’s live interview with ABC Philadelphia discussing coronavirus concerns; the interview aired February 27, 2020.