I think the last time I sent out a client market note was in October 2018, during that 4th quarter market meltdown we experienced. At the time I suggested markets were over-reacting to negative sentiment, that the underlying economy was still strong, and that I expected a six to nine-month recovery. The actual recovery took a bit less than four months.
Coronavirus Disease 2019
Today we face the global concerns over the Coronavirus Disease 2019 (a.k.a. COVID-19), a virus strain initially found in China believed to have been derived from human/animal contact. The disease affects the respiratory system and is highly contagious from those infected. Cases of infection from those not infected, otherwise referred to as “community” infections are just in the very early stages of confirmation.
COVID-19 has spread from China, mostly due to China outbound traveler exposure. The number of countries affected, and the number of confirmed cases has grown rapidly. However, the rate of new infections in China (the disease epicenter) are declining and the fatality rate remains subdued. As of Feb. 27, there were about 83,000 cases worldwide and 2,800 deaths. The U.S. has 60 confirmed cases, but no deaths as yet. While this certainly is an epidemic, these quantities don’t yet add-up to the “pandemic” label the main-stream media has given this disease. In a world of 7.8 billion people, most medical experts agree 83,000 cases does not qualify as a pandemic. To put this in better perspective, the annual outbreak of influenza, the “Flu”, kills about 100,000 people worldwide and is never referred to as a pandemic. It is unlikely COVID-19 will experience that level of global deaths.
Stock Market Reaction to COVID-19
Stock markets have reacted negatively to the flood of reports about COVID-19 and the large amount of media coverage. The S&P 500 is down over 14% since the last market peak on Feb. 19. Not unlike my October 2018 comments, I feel the market is over-reacting to COVID-19. Yes, more people will become infected, and more will die. But, as indicated in China, the rate of new infections and deaths will decline. Global trade is affected, as are corporate earnings, but these will become “situational circumstances” rather than a new normal. The world will recover, just as it does every year from influenza-related effects. Thus, I am not reacting to the market drawdowns…at least not yet. I see opportunities for rebalancing trades and trying to buy equities at lower prices as a good portfolio strategy. I see a recovery in the three to six-month timeframe and I further expect the S&P 500 to finish the year at, or near, all time highs. The underlying U.S. economy remains strong and provides significant support for stock investments. I didn’t over-react in 2018 and I won’t now. I hope that decision once again proves beneficial.
Please feel free to contact me with questions or for further discussion.
Barron Financial Group, LLP is a fee-only Registered Investment Advisor regulated by the Connecticut Department of Banking.
This newsletter is for general information only and should not be considered investment advice. Investors should consult with a trained investment professional to discuss their particular situation.