MIKE'S MONDAY BLOG
As I am writing this, on Thursday, the previous few days of trading have very much been in the red—the S&P is down around 10%. The obvious reasoning behind such a move is the global fear of the Coronavirus. The coverage and updates on the virus have been ongoing in the news media since late January, but the financial markets have only recently been paying attention, as the horrible u-word (uncertainty) has crept in.
The Chinese communist party has not been forthcoming on information about the virus, how many are infected, the death toll, etc. I have heard in the news recently that this outbreak goes back all the way to November in mainland China. With that being said, it’s hard for one to truly gauge the full extent of this outbreak.
Some early reports in late January, such as the one out of Washington Times on January 24th, have suggested that the virus may have originated, and accidentally escaped, from a Wuhan laboratory that is part of China’s biochemical laboratory program. The initial reasoning was that the lab is, supposedly, only a few blocks from the market where most believe the virus came from (1). More recent reports have squashed that possibility as the current belief is that it originated from the animal market in Wuhan. Regardless its origin, this issue is on everyone’s mind and it’s almost impossible to go through the day without hearing about the virus multiple times.
For my blog this week, I’m going to talk about recent outbreaks, the subsequent impact on the market, and what we may expect in the months to come. I hope this piece will settle your nerves a bit on the financial side of things—I can’t promise on delivering on the medical side of things; remember I am a financial advisor, not a microbiologist.
We could conceivably go back to the Spanish Flu outbreak during the latter stages of the First World War in 1918 and discuss the implications of that epidemic, but I don’t believe that is a great comparison for what is happening today. Instead, one that immediately jumps to mind, and one that everyone should remember, is the 2014 Ebola outbreak.
To give some background and context, the W.H.O.’s office in Africa published it’s first report on the virus in late March of 2014 (2). The international community began to get concerned about the potential impact months later, with the likes of the UK and the United States having meetings in early September discussing the epidemic and the ways in which to combat the outbreak from spreading in their countries (2). Personally, I remember it was around this time, in and around September/October where the news media really brought this issue to the forefront.
Believe it or not, the World Health Organization lists this outbreak’s timeline from 2014 all the way to 2016. I think it’s safe to assume that Ebola left most people’s mind much earlier than 2016. Nonetheless the numbers of infected and those that died during the outbreak go as follows: “…suspected and confirmed cases had totaled more than 28,600, and reported deaths numbered about 11,300, making the outbreak significantly larger than all previous Ebola outbreaks combined. The actual numbers of cases and deaths, however, were suspected to be far greater than reported figures (3).” Let’s look at this in percentage terms—let’s say that the 11,300 deaths and 28,600 infected were the real numbers and they aren’t on the lower side of the spectrum; that’s a 39.5% death rate—roughly 4 in 10 people died from the disease.
If we look at the losses in the stock market that came during that period of time of greatest concern, which is from roughly mid-September to mid-October, the lowest decline we saw was a downturn of a little more than 7%. The year of 2014 saw a return of 14.04% from the total return of the S&P 500 (which means reinvesting dividends as well) (4).
This was because it wasn’t a systemic issue. Look back at my blog post a few weeks ago, The 2020 Election & President's Impact on the Stock Market. In that I mention when clients get skittish of Washington’s impact on the market, I force them to take a step back and look at the bigger picture—I think this reasoning applies here as well.
Currently in terms of the mortality rate for Coronavirus globally, as a percentage, it is around 3.7% (5).
Now you might say that Coronavirus is different because it is also severely disrupting supply chains, particularly multinational companies that have a large presence in mainland China. That is true, but I personally do not put much credence in the idea that Coronavirus is a systemic issue to the global financial system. An example of a systemic issues is when credit tightens and borrowing becomes nearly impossible, like what took place during the financial crisis; that is a recipe for any economy to slow to a halt. A virus impacts the global supply and demand of commerce, but this a short-term impact. No one at this moment in time has any real idea when the fear of contagion will begin to slow, or how much lower the markets will go, but when we get a handle on this issue, and the “u-word” leaves people’s mind, the positives we saw only a few weeks ago will come back and continue to flourish. If you are one that is a long term investor, and has cash on the sideline, this downturn presents a nice buying opportunity—as the old investing adage goes: be greedy when others are fearful, and be fearful when people are greedy.
I want to extend a big thank you for taking the time and reading my weekly blog. If you have any questions or would like to schedule a sit-down meeting to discuss more of your financial future, please contact me at 610-374-6249 x114 or visit my website mlistmeier.wradvisors.com
This is meant for educational purposes only. The material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. The information is based on data gathered from what we believe are reliable sources. It is not guaranteed by Waddell & Reed, Inc. as to the accuracy and is not intended to be used as the basis for any investment decisions. The information presented does not constitute a solicitation for the purchase or sale of any security and is not a recommendation of any kind. Please consult your financial advisor before making financial decisions. (03/20)