CORONAVIRUS & THE MARKET
The novel coronavirus has been causing fear and panic around the world over this last month. According to the World Health Organization (WHO), the coronavirus is a family of viruses found in humans and animals that causes respiratory illness, which in severe cases can lead to pneumonia and breathing difficulties. Other well-known strains of the coronavirus include the Severe Acute Respiratory Syndrome (SARS) which was transmitted from cats to humans in China in 2002 and the Middle East Respiratory Syndrome (MERS) transmitted from camels to humans in Saudi Arabia in 2012. The most recent novel coronavirus was first reported in Wuhan, China in December of 2019 and the source is still being investigated.[i] While China continues to be the epicenter of the epidemic (28,000+ cases), the virus has been reported in 25 countries including Singapore (30 cases), Japan (25 cases), Thailand (25 cases), Korea (23 cases), Australia (15 cases), and the United States (12 cases), just to name a few.[ii]
Due to the fast spreading nature of the coronavirus, the devastating impact and the lack of current medical remedy/vaccine, the stock market has been very reactive to the coronavirus. The Shanghai Stock Exchange was closed for the celebration of the Lunar New Year from 1/24/20-1/30/20 this year.[iii] This was during the peak of the coronavirus news breaking. As a result, when the market re-opened, the market reaction that would have normally been spread out over a week was consolidated into a single day of trading, exponentially increasing volatility. The Shanghai Composite Index fell nearly 8%, its biggest daily drop in four years.[iv] The Dow Jones Industrial Average also dropped 603 points or 2.1%, wiping out its 2020 gains year-to-date.
Many feel the reaction to the coronavirus is irrational and unnecessary. As of this week, approximately 565 people worldwide have passed from the coronavirus.[v] To keep things in perspective, the flu took over 34,000 lives in the U.S. alone in 2019 and is projected to have a similar impact in 2020.[vi] Yet, the flu had no impact on the stock market last year, nor will it likely affect the market in 2020. Further, the last three major health epidemics, Ebola, SARS, and MERS were contained before having a significant impact on the global world market, and many market leaders expect the same with the coronavirus.
You may have heard that China has locked down citizens of Wuhan and nearby cities within the Hubei province where the coronavirus began. However, the locked down population is estimated to be only 60 million in China’s booming population of 1.4 billion people and their major cities continue to run efficiently.
The stock market is reactive because investors are worried the coronavirus could cause a world economic slowdown. There is an unknown variable regarding the severity and future impact of the disease, and the stock market hates uncertainty. This is particularly true in our current U.S. stock market. We are teetering at all-time market highs and investors are wondering which event will trigger the overdue market pull-back that ends our 11-year bull market run. In other words, the U.S. market is especially sensitive to “bad news” at present.
Examining the immediate impacts of the coronavirus, healthcare and healthcare product companies have gone up as much as 10% in value. Conversely, manufacturing, real estate, and the construction market sectors have lost value with worries that imports/exports would be adversely affected. There is also a decrease in consumer spending in China and nearby countries as citizens temporarily avoid public venues.
However, analysts at Oxford Economics guessed that, similar to the stock market during the 2003 SARS epidemic, the market reaction to the coronavirus will be sharp but short-lived.[vii] In other words, long term investors should not make investment portfolio changes for an event that will pass quickly and likely be ineffectual to the 2020 world economy.
Volatility is likely to remain high until a medical breakthrough related to the coronavirus is found. Reports indicate a remedy could be around the corner as medications used to fight the flu and MERS have shown to work effectively on some coronavirus patients. However, looking ahead to the year in full, many economists already predicted 2020 would be a volatile year for the U.S. market as we face a presidential election, new phases of the U.S.-China trade agreement and general late-stage market slowing.
Therefore, a prudent approach to dealing with the coronavirus would be to review your portfolio with your Certified Financial Planner™. If your portfolio is riskier than you’re comfortable with, make adjustments to ensure your portfolio is positioned to be resilient in the market volatility to come in 2020. If you’re well diversified, no singular company makes up a majority of your overall investment portfolio and the asset classes are balanced in a way to offset volatility due to short-term blips in the market like we are experiencing this month. Finally, remember to focus on the end-goal in your investment strategy. Panicked decisions made in a silo rarely compliment long-term objectives.
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc. or performance returns of any Kondo Wealth Advisors, Inc. Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.