In today’s Steady Investor, we look at what is going on in the markets and our key takeaways and questions for investors to consider, such as:
Market Volatility as Coronavirus Spreads – For weeks, the equity markets seemed to shrug off the possibility of negative impact from a spreading coronavirus. But the tone changed this week, as the S&P 500 posted sharp declines early in the week as confirmed cases grew sharply across the world – particularly in developed economies like South Korea, Japan, Italy, and even here in the US. While equities sold off sharply, the yield on the 10-year US Treasury fell to a record low and oil prices dropped below $50 a barrel – all signs of growing investor concern over demand and economic growth in the coming months and quarters. In our view, volatility is likely to persist as investor attention is decisively shifted away from fundamentals (revenues and earnings) and towards the unknown (headlines). In short, we believe the fear of the coronavirus as a global pandemic is arguably greater, for now, than the actual economic impact it is likely to have. While we do not mean to downplay the seriousness of the outbreak, history suggests that the impact to growth and market performance – and the grip that the outbreak holds on global psychology and confidence – will be temporary, in our view.1
_________________________________________________________________________
Sooner or Later, The Bear Will Wake Up. Are You Ready?
As the market dropped this week, there is no doubt that many investors fear a bear market is around the corner, and considering that we’re still in the longest bull market ever, many think a turnaround is inevitable.
But don’t despair. Bear markets are a natural (if unpleasant) part of the economic cycle, and you can potentially avoid the most harmful hazards of a bear market on your investments by making use of some useful tools we offer in our free guide.
If you have $500,000 or more to invest, get our free guide today. You’ll learn some of the most common indicators of recession, and get our viewpoint on the most important moves you can make to weather a recession. Don’t wait—get this guide before the storm hits.
The Zacks Bear Market Survival Kit2
_________________________________________________________________________
China’s Economy Matters, A Lot – When the SARS outbreak happened in 2003, China’s share of the global economy was about 10%. Today, however, China accounts for double that figure (20%) while also holding the title as world’s largest manufacturer. China’s burgeoning middle class also showers money around the world, with tourists spending approximately $260 billion a year. These economic fundamentals place China and the global economy in a precarious position: one on hand, the economy benefits from sending people back to work and restarting factory operations. On the other, restarting the economic engine risks spreading the coronavirus even further and for longer. To underscore just how important China’s economy has become on the global stage, consider that over the last five years, the three most material sell-offs in the S&P 500 index have had ties to China. There was the yuan devaluation in 2015, followed by downside volatility connected to the US-China trade dispute in fall 2018, followed by the selling pressure we’re seeing today connected to the coronavirus.3
An Anecdote for the 21st Century Economy – The iconic American company, General Electric, cut its workforce by 78,000 in 2019, bringing its total number of employees back to levels not seen since 1951.4 As General Electric slashed jobs and made efforts to cut costs, other companies within the services sector went on a hiring spree – the healthcare sector added 361,000 jobs over the last 12 months, transportation and warehousing added 106,000, leisure and hospitality added 288,000 jobs, and professional and business services added 390,000. This anecdote for the 21st Century economy is a display of the continued rotation of the economy from a manufacturing/industrial economy to a service and consumption-based economy. 5 In our view, investors should be posturing over time for this evolution to continue apace, with no looking back.
How to React to Recent Volatility? One challenge that many equity investors are facing is how to react to current volatility. In our view, it is important to remember that volatility is a normal part of the ebb and flow of the markets. We believe the key is not to look for ways to eliminate it, but to develop a mental approach to dealing with it.
Volatility and bear markets are a natural (if unpleasant) part of the economic cycle, and you can potentially avoid the most harmful hazards of a bear market on your investments by making use of some useful tools we offer in our free guide, “The Zacks Bear Market Survival Kit.”6
If you have $500,000 or more to invest, get our free guide today. You’ll learn some of the most common indicators of recession, and get our viewpoint on the most important moves you can make to weather a recession. Don’t wait—get this guide before the storm hits.
Disclosure