{"id":8522,"date":"2020-03-02T21:02:16","date_gmt":"2020-03-02T21:02:16","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8522"},"modified":"2022-02-26T13:06:44","modified_gmt":"2022-02-26T13:06:44","slug":"assessing-the-market-impact-of-coronavirus","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/assessing-the-market-impact-of-coronavirus\/","title":{"rendered":"Assessing the Market Impact of Coronavirus"},"content":{"rendered":"\n<p>As I write, there are approximately 80,000 confirmed\ncoronavirus (Covid-19) cases with over 2,600 reported deaths \u2013 numbers that are\nlikely to rise even further in the coming weeks. Reporting on the virus is\nabundant and scary, and the capital markets reacted sharply this week by\nposting some of the biggest declines seen in years. The S&amp;P 500 fell -3% in\na single day of trading, the yield on the 10-year Treasury fell to a record\nlow, and oil prices sank below $50 a barrel.<sup>1<\/sup> <\/p>\n\n\n\n<p>To many readers, I realize the\nsituation feels dire. Many investors now find themselves in a challenging\nposition: <em>Should you hedge against the\nrisk of further downside, knowing the crisis is likely to get worse before it\ngets better? Or do you remain patient and avoid the trap of market timing<\/em>? <\/p>\n\n\n\n<p>Long-time readers know I\u2019ll almost\nalways argue for the latter option. In my view, the current hysteria\nsurrounding the virus outbreak is worse than the outbreak itself, and I believe\nthe economic impact \u2013 while not zero \u2013 will be less negative than a majority of\npeople expect. While I can\u2019t see into the future, I have seen this movie\nbefore. <\/p>\n\n\n\n<p>_________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_3_2&amp;content=stock_market_outlook_report\">How Should You Respond to Recent Volatility?<\/a><\/strong><br> <br> Instead of getting caught up in the fearful narrative that surrounds current volatility, why not look at how to posture your portfolios for a late cycle, mature bull market? In my opinion, that means staying focused on hard data and key economic indicators.<br> \u00a0<br> Our just-released Stock Market Outlook report can help you do just that. This report contains some of our key forecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>U.S. returns expectations for 2020<\/em><\/li><li><em>What Produces 2020 Optimism?&nbsp;<\/em><\/li><li><em>What of U.S. GDP Growth?<\/em><\/li><li><em>What industries within those sectors most merit your attention?<\/em><\/li><li><em>Forecast for the S&amp;P<\/em><\/li><li><em>Small-cap vs. large-cap returns<\/em><\/li><li><em>And much more.&nbsp;<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0<br> <br><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_3_2&amp;content=stock_market_outlook_report\">IT&#8217;S FREE. Download the Just-Released March 2020 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_3_2&amp;content=stock_market_outlook_report\">2<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>______________________________________________________________________<\/p>\n\n\n\n<p>As it stands today, the Covid-19 is worse than Ebola and SARS,\nwhich slowed China\u2019s growth materially in 2003. But Covid-19 is still nowhere\nnear the impact of the Swine flu pandemic during 2009 &#8211; 2010, which infected <em>somewhere in the neighborhood of 1 billion\npeople,<\/em> killing over 280,000. By some estimates, nearly 20% of people on\nthe planet were exposed to swine flu at its height.<sup>3<\/sup><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/1_image-1-of-1.png\" alt=\"\" class=\"wp-image-8523\"\/><\/figure>\n\n\n\n<p><strong><em>Source: Zacks Investment Research<sup>4<\/sup><\/em><\/strong><\/p>\n\n\n\n<p>As you can see in the chart above, the Swine flu struck at a\ntime when the global economy was in a very fragile state, barely standing on\ntwo feet. Consumer and investor confidence were abysmal, and it was difficult\nfor many to see a bright economic future. What happened next, however, was the\nlongest economic expansion and bull market in a century. <strong>Virus outbreaks, while scary, have historically been worse on human\npsychology than the economy. <\/strong>&nbsp;&nbsp;<\/p>\n\n\n\n<p>Another way to frame your thinking on the coronavirus is to\nsimply compare it to the common flu. The Centers for Disease Control (CDC)\nestimates that there have been 15 million flu illnesses <em>this season alone<\/em>, which have led to 14,000 hospitalizations and\n8,200 deaths.<sup>5<\/sup> These numbers far outstrip where we are today with\nCovid-19. <\/p>\n\n\n\n<p><strong>Yes, But Is It Different\nThis Time?<\/strong><\/p>\n\n\n\n<p>In the very early stages of the outbreak, it is nearly\nimpossible to quantify the economic impact to China, the United States, and the\nworld. We are already starting to see signs that economic output and\nconsumption will feel some significant pressure in China over the short term:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Tens of millions of people in China are facing\nlockdowns and restrictions on movement;<\/li><li>Multiple airlines have suspended flights to\nmainland China;<\/li><li>The U.S. issued a \u201cdo not travel\u201d to China\nadvisory, a designation generally reserved for the most dangerous situations;<\/li><li>Apple Inc. and other major corporations have\nbeen actively re-routing supply chains outside of China to keep production\nlevels normal;<\/li><li>Starbucks is warning shareholders of a hit to\nrevenue for the period;<\/li><li>Major automakers like Ford and Toyota are idling\nfactories for the time being;<\/li><li>Chinese consumers are staying home.<\/li><\/ul>\n\n\n\n<p>Many readers might accurately point out that China today\nmakes up a much larger slice of the global economy than it did during the SARS\noutbreak. China now accounts for approximately 1\/6<sup>th<\/sup> of total world\noutput, is the world\u2019s largest manufacturer, and Chinese tourists spend\napproximately $260 billion a year around the world.<sup>6<\/sup> There is little\ndoubt, in my view, that the economic impact to China will be material in Q1\n2020 and perhaps even the second quarter. If full containment and eradication\ntakes approximately six months (which history suggests it might), then a\nslowdown in the world\u2019s second largest economy would almost certainly have\nrippling effects.&nbsp; <\/p>\n\n\n\n<p>The overarching question for investors, however, is how big\nthose rippling effects might be, and whether or not they lead to a global recession.\nAgain, from where we sit today, this question is near impossible to answer. But\nthe history of past virus outbreaks suggests that virus-related pressures on\nspending and production are probably not enough to stop an economic expansion\nin its tracks.&nbsp; <\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n<p>As always, when we think about extraneous factors like virus\noutbreaks, military strikes (like Iran earlier this year), or regulatory forces\n(like the grounding of Boeing planes), it is important to consider these events\nin a broader context. In the case of the coronavirus, we can look at SARS,\nSwine flu, and Ebola \u2013 as I\u2019ve done above \u2013 to provide information about\neconomic and market impact.<\/p>\n\n\n\n<p>Remember, too, that there have been worse down days for the\nS&amp;P 500 within this bull market. The market declined more in response to\nthe European Debt Crisis (2011), the Fed \u201ctaper tantrum\u201d (2013), the yuan\ndevaluation (2015), and the Brexit referendum (2016).<sup>7<\/sup> Knee-jerk\nreactions to big, scary headline risks are common in equity markets, but they\noften don\u2019t last very long. I do not expect the Covid-19 selling pressure will,\neither. <\/p>\n\n\n\n<p>Investors should also remember that governments and central\nbanks have the means to stimulate the global economy should the crisis drag on.\nFederal Reserve Chairman Jerome Powell signaled that the central bank is\nwatching the situation closely. In the aftermath of the SARS outbreak,\nfactories raised wages to bring workers back and get production moving again.\nChina has already committed massive fiscal stimulus and eased monetary policy.\nThere are tools in the tool shed. However, if the viral outbreak does cause a\nsupply shock, reducing interest rates will likely not be as effective in\nstimulating the economy as it has been historically. <\/p>\n\n\n\n<p>The overarching question that investors are focused on,\nhowever, is how big those rippling effects might be, and whether or not they\nlead to a global recession. While this is an important question, it is\ninconsequential to long-term investors. There will be another global recession\nat some point in time &#8211; this is guaranteed. Worrying about whether the next\nrecession will be next week, or next month or next year is immaterial. While\nrecessions will cause stock prices to fall, the long-term value of stocks,\nwhich are driven by the present value of future earnings, are for the most part\nnot permanently impacted. The key is to try to avoid heavily indebted companies\nthat may not be able to refinance in periods of economic turmoil and try to\ngive preference towards companies with positive expected earnings.\nAdditionally, the history of past virus outbreaks suggests that virus-related\npressures on spending and production are probably not enough to stop an\neconomic expansion in its tracks.&nbsp;<\/p>\n\n\n\n<p>In the meantime, I recommend that investors stay steady, do not let fearful headlines impact their investments and stay focused on the long-term investing approach instead of getting caught up in daily price movements. To help you do this, I am offering all readers our\u00a0<strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_3_2&amp;content=stock_market_outlook_report\">Just-Released March 2020 Stock Market Outlook Report.\u00a0<\/a><\/strong><br> \u00a0<br> This Special Report is packed with newly revised predictions that can help you base your next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>What Produces 2020 Optimism?<\/em><\/li><li><em>Our global outlook<\/em><\/li><li><em>What sectors\u00a0show the best opportunity?<\/em><\/li><li><em>What industries within those sectors most merit your attention?<\/em><\/li><li><em>Forecast for the S&amp;P<\/em><\/li><li><em>Small-cap vs. large-cap returns<\/em><\/li><li><em>And much more.\u00a0<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<sup>8<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Mitch looks at the likely economic and market effects of the outbreak based on historical precedents<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8522","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8522","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8522"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8522\/revisions"}],"predecessor-version":[{"id":10634,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8522\/revisions\/10634"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8522"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8522"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8522"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}