This coronavirus is a true wild card. It appears to be spreading globally. It is now on every continent except Antarctica and in over 60 countries. While individual risk is low, collectively the public health risk is significant.
“More cases are showing up in the U.S. and seem likely to be just the start. The scope, severity, and duration are uncertain. How much it changes behavior in the U.S. is uncertain.” (Ed Hyman Evercore ISI)
People are starting to react out of an abundance of caution. This is critical as the consumer has been the driving force in the US economy.
Certainly there is going to be slowing economic growth, both here and around the globe. “The risks are clearly skewed to the downside until the outbreak is contained. An increasing amount of companies [are] suggesting potential production cuts should supply chain disruptions persist into Q2 or later.” (Jan Hatzius, Goldman’s chief U.S. economist). If they get the virus contained and/or find a vaccine, the economic damage will be short term. If the virus spreads and it takes longer to find a treatment, then we could be looking at a recession later this year or early 2021.
On the investment front, some of our indicators are flashing red. Specifically, the S&P 500 broke below a 2-year trend line. As such, we are adjusting client portfolios to lower equity exposure. We are suggesting client’s do the same in their 401Ks or other accounts that we don’t manage. Always consider your investment objectives, time horizon, and risk tolerance before making any changes. Call us if you have questions.
This situation is quite uncertain, and we don’t want to overreact. But we also don’t want to underreact.
At the moment, we feel a moderate adjustment is sufficient. The market could spring back as fast as it declined, so we don’t want to overshoot with our adjustments. In fact, I fully expect a bounce back rally in stocks in the near-term. However, I am not confident that rally will hold and stocks likely drop back to their recent lows from last week.
I also expect central banks and fiscal authorities to take action to try to offset the economic and financial impact of the virus situation. This should provide a short-term boost to the financial markets. Here again, the scope of these actions is limited and whether something like an interest rate cut changes consumer behavior in the face of the virus is suspect.
The next several weeks will be telling. If the spread of the virus starts to slow, that will indicate that actions being taken (quarantines, travel restrictions, etc.) are working. We are monitoring this using
https://www.worldometers.info/, which provides real-time data on population, governments and economics. It is managed by an international team of developers, researchers and volunteers.
I hope this report proves helpful. Please call with any questions or concerns.
March Calendar of Events (comments and additions for future months are always welcome)
March is Women’s History Month. Please says thanks to all the important women in your life.
March 8th International Women’s Day
March 8th Daylight Savings begins – Spring forward
March 9th Purim – Chag Purim Sameach to all of the Jewish faith
March 17th St Patrick’s Day
March 19th Spring begins in US
Sources: CNBC.com, FactSet
Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
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