An Update on the Coronavirus and Its Impact on MarketsSubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on February 28th, 2020
By Patrick Doherty, CFP®, February 28, 2020
Since the opening bell on Monday morning (2/24/2020), the Dow Jones Industrial Average had fallen by more than 1,100 points through Thursday (2/27), driven by fear that the coronavirus pandemic will increasingly disrupt global supply chains and suppress consumer demand. The uncertainty over what will happen next – have the measures taken contained the spread of the virus, or is this just the beginning – contribute to investor worries.
Regardless of the source, periodic market volatility should be expected. That is why, at Reby Advisors, we take these events into consideration when we build purposeful, globally diversified portfolios. Behavioral investing mistakes – such as making long-term investment decisions based on short-term fluctuation – is one of the most common reasons investors fail to achieve their goals.
Before reaching a buy-sell decision during times like these, it’s important to remove emotions from the decision-making process and assess the situation objectively.
The Economic Risks
According to The New York Times, a person could carry the virus showing no symptoms at all or mild symptoms that appear to be a common cold. That person could transmit and spread the virus unknowingly.1
With the uncertainty over how far and wide the virus could spread, it is also unknown how far governments will need to go in order to quarantine or halt education or business activity. Japan, for example, has closed schools for approximately a month to preserve the Summer Tokyo Olympics.2
Investors fear that the coronavirus may cause an economic slowdown due to a ripple effect:
- Consumers avoid economic activities like shopping, dining and travel;
- Business operations experience supply chain disruptions due to shutdowns in China and other highly impacted nations;
- Reduced consumer spending and supply chain disruptions hurt corporate earnings;
- disappointing corporate earnings drive down stock prices;
- falling stock prices shake consumer confidence; and
- less spending in America hurts the domestic and global economy.
Previous Pandemics Have Not Caused Lasting Economic Damage
The scenario above, of course, may not play out. The SARS virus from the early 2000s died out as it became less transmissible. There has also been some optimism regarding a vaccine.
If concerns continue to rise, Central Banks will likely cut interest rates with the aim of offsetting the risk of an economic slowdown. Here at Reby Advisors, we recently reduced previous exposure to emerging markets and increased our investment in domestic fixed income.
Moreover, if coronavirus causes a drop in consumer spending, it may be end up being temporary and simply delay spending. For example, a consumer holds off on buying an iPhone in Q1 but then makes the purchase in Q2.
The Health Risks
The first recorded infections came from Wuhan, China. The overall fatality rate in China was 2.3% -- conversely, 97.7% have survived. The 2.3% fatality rate is inflated by a 2.9% fatality rate in Hubei Province. Outside of Hubei Province, the fatality rate was just 0.4%.1
Globally, 55 Countries have reported 83,000+ total cases and 2,800+ fatalities.3 The United States has 60 confirmed cases, 42 of which were passengers on the Diamond Princess cruise ship. 4
High Survival Rates
From a health perspective, it’s noteworthy that the vast majority of people who have been infected have survived. However, the fatality rate is much higher than the 0.1% fatality rate for the seasonal flu. 1 In China, people from poorer areas and the elderly have had much higher fatality rates than the younger population.
What Can You Do?
First, listen to health officials for news and updates, not necessarily political or media figures without expertise.
To protect yourself and others, remember that the simplest of precautions are often the most effective. Wash your hands often. Disinfect hands and personal items. Cover mouths when coughing and, if you are sick at all, remain at home.
At Reby Advisors, our investment strategies are designed for the long haul. We have advised families and investors through many periods of market volatility. If you have any questions or concerns about your portfolio, please do not hesitate to contact us.