Weekly Market Commentary

March 5, 2020

 

The Markets

Take a deep breath.

We have experienced downturns before.

Think back to 2018. During the last quarter of the year, major stock indices in the United States suffered double-digit losses, much of it during December. What happened next? By the end of 2019, those indices had reached new highs.

The reasons for, and performance following, market downturns varies. The key is not to panic.

Last week, U.S. stock indices lost significant value when the coronavirus spread outside of China, and expectations for companies’ performance in 2020 changed. At the start of the week, markets anticipated positive earnings growth (i.e., higher profits) during 2020. By the end of the week, they suspected earnings might be flat for the year.

At the end of last week, FactSet reported 68 companies in the Standard & Poor’s 500 Index had offered negative earnings guidance for the first quarter. In other words, the companies didn’t expect to be as profitable from January through March as analysts anticipated. That’s fewer companies than normal, relative to the five-year average.

Changing profit expectations are one concern for investors. Another is fear. Investors are afraid the current economic expansion and bull market may end. At this point in the economic cycle, people often are both hopeful and doubtful.

Currently, investors are reacting to the coronavirus. Markets in the past have responded negatively to other viruses and then recovered. It’s very possible that this may affect the first 2 quarters of earnings and then recover in the rest of the year once supply chains are up and running again.

This isn’t the first time that an epidemic has rocked the stock market. The S&P 500 fell 15 percent after SARS hit the market in 2003 but was up just over 1 percent six months after the outbreak began.

We will also have opportunities to buy shares of attractive companies at reduced prices. Warren Buffet offered this reminder last week in a Barron’s article:

“…[the coronavirus] makes no difference in our investments. There’s always going to be some news, good or bad, every day. If somebody came and told me that the global growth rate was going to be down 1 percent instead of 1/10th of a percent, I’d still buy stocks if I liked the price, and I like the prices better today than I liked them last Friday.”

Until the full effect of the coronavirus is known, markets are likely to remain volatile.

 

What you should know about the Coronavirus. The coronavirus is now officially known as Coronavirus Disease 2019 or COVID-19. Last week, it spread to countries outside of China. If there is any good news about the contagious disease, it is COVID-19 may be relatively mild.

In its February 28 briefing, the Director-General of the World Health Organization (WHO) stated, “It also appears that COVID-19 is not as deadly as other coronaviruses including SARS and MERS. More than 80 percent of patients have mild disease and will recover.”

The Director-General identified the symptoms of COVID-19 stating, “…for most people, it starts with a fever and a dry cough, not a runny nose. Most people will have mild disease and get better without needing any special care.”

Currently, more than 20 vaccines are being developed. In the meantime, there are things you can do to protect yourself. They include:

  • Washing your hands with soap and water regularly or cleaning them with an alcohol-based hand sanitizer.
  • Cleaning and disinfecting frequently touched objects and surfaces.
  • Cover your mouth and nose with a tissue or your sleeve – not your hands – when you cough or sneeze.
  • Avoiding close contact with people who are sick.
  • Staying home and avoiding travel when you are sick.
  • Contacting your medical professional when you experience symptoms, which include shortness of breath.

WHO also recommended educating yourself about the coronavirus. Make certain to gather information from reliable sources, such as WHO or the United States’ Centers for Disease Control (CDC), and have a healthy skepticism when it comes to unknown sources. Misinformation and disinformation about COVID-19 have been spreading almost as quickly as the virus itself.

The Director-General closed last week’s briefing by saying, “Together, we are powerful…Our greatest enemy right now is not the virus itself. It’s fear, rumors, and stigma. And, our greatest assets are facts, reason, and solidarity.”

 

Focus On The Positive

“The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”–Sir John Templeton, Investor, asset manager, philanthropist