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How is Coronavirus Impacting Global Markets?

By Mike McAlpine, Peoples Bank Wealth Management Group President

The impact of the Coronavirus (COVID-19) is being felt around the world. Some of the things that make the Coronavirus different from other viruses include the incubation period, the number of cases that may be undiagnosed, the global spread moving faster than the implementation of or access to screening measures, and the number of new cases that do not seem to have a connection to China. While the rate of Coronavirus cases seems to be slowing inside of China, infections are now rising in the rest of the world. As of March 5, 2020, the number of Coronavirus cases has now reached about 97,000 worldwide, with over 3,000 deaths. For up-to-date information on the Coronavirus numbers, go to worldometers.info.
 
Person typing at computer. Text: As is evident from the recent market reaction, investors are struggling to determine the economic impact from this epidemic.
 
Global supply chains have been impacted due to their reliance on Chinese production, including manufacturing. While there are reports of factories reopening in China, the ability of workers to return to the workplace has been slower than anticipated. As is evident from the recent market reaction, investors are struggling to determine the economic impact of this epidemic.

The surprise was the speed to which the market reacted to Coronavirus news, with the S&P declining more than 10% for the week ending February 28, 2020. Larry Kudlow, Director of the National Economic Council, says that information is being shared across agencies and he does not feel that this plunge will have a long-term impact, but uncertainty remains. 
 

From an investment perspective, however, corporate earnings will be impacted by the Coronavirus.  James Bullard, President of the Federal Reserve of St. Louis, stated that rate cuts may be necessary if this Coronavirus becomes a pandemic. On March 3, 2020, the Federal Reserve did cut rates by 0.50%.  Many economists believe that further cuts are likely.  Now that the fear over the economic fallout and the uncertainty of such has tightened its grip on the markets, what should we do? 

Picture of a desk. Text: "I still think long-term investors should give very serious thought to coming back in or adding to their positions in the stock market." - Larry Kudlow, National Economic Council

At this point, we really are uncertain what impact the market downturn will have in the long-term. We continue to stress the importance of staying focused on the long-term and to maintain a well-diversified portfolio that takes into consideration individual risk tolerances, liquidity needs, time horizon and investment goals. Behavioral economists caution people to avoid making investment decisions that are emotionally based. Data is on our side when trying to determine a direction to take.  We know the importance of diversification. We also know the effect on returns by missing the best days in the market. Historically, large selloffs have been followed by a rebound within 6 months if there is no recession.
 
Kyle Woodley of Kiplinger shared some information from a study by the online investment firm Betterment. This study looked at the Dow in 2019. Investors who held on to a Dow fund last year finished with a 24% plus return by year end. But investors who bailed right after the 800-point Dow drop in August and never returned saw their returns cut in half, to 12%. People who bought back just a couple of weeks later, missing some of the recovery, also saw their gains pared back to 19%. This certainly supports the position to avoid that panic selling and stay true to those long-term investment goals. 
 
In closing, without question, the Coronavirus will impact markets across the globe. In addition, the political landscape will add greater uncertainty for the marketplace. Evaluate your personal financial goals and make certain that your portfolio is diversified around those goals. Feel free to contact us if you have any questions or concerns.
 

Picture of someone typing at a laptop. Text: Historically large selloffs have been followed by a rebound within 6 months, if there is no recession.

 

This material is for informational purposes only.  The views, comments and opinions are based upon current market conditions and are subject to change.  This information is not to be considered research, recommendation to take any action or advice from Peoples Bank or any of its officers, directors or employees.  Any forecasts, figures, opinions or investment techniques or strategies contained herein are for informational purposes only.  This does not include sufficient information to support any investment decision.  Investors should visit with their own professional advisers to determine suitable investment actions to take regarding personal goals and objectives.  It should be noted that investments involve risk including the possible loss of principal.  Investment products are not FDIC insured, not a bank deposit, not guaranteed by the bank or any U.S. Government Agency and principal may lose value.  Investment and the income from them may fluctuate in accordance with various market conditions.  Past performance is not to be considered an indication of future results.   

Sources include the Wall Street Journal, Bloomberg and Kiplinger.