Usually when I think about Corona, images of sitting on the beach relaxing appear; however, with this Corona(virus), it is anything but relaxing.  Many have been affected by the virus due to quarantine, illness and even death.  Now, it has also wreaked some havoc on the global markets, especially on Monday with Dow Jones Industrial Index with a jaw dropping 1,031 points and 920 points so far on Tuesday!

With the recent market rally, valuations have become expensive compared to historic norms.  Company revenue and earnings, especially in the US, have been very good and have continued to grow, but the stock prices of the companies have been increasing faster than their earnings.  Monday and Tuesday’s pullback was not a surprise as it was arguably overdue, however the catalyst to cause a market fall was unknown……until growing fears of the Coronavirus came front and center.

What is and will be the actual impact of the Coronavirus is still unknown and uncertainty is one of the things the market hates the most!  As I write this, there have been 2,622 deaths.  Those deaths are extremely sad, however there were 34,157 influenza deaths last winter in the US alone without much news or effects on the market.  To stop the spread of the Coronavirus, China has cancelled much travel within the country, conferences, even Chinese New Year celebrations.  Much of Monday’s sell off was triggered when Italy announced a surge in Coronavirus cases which resulted in limiting travel at their border.  The most likely economic impact will stem from the restriction of travel and moving of goods between cities and countries.  The impact will, of course, vary greatly from business to business and should be accessed at that level. The market yesterday reacted by taking an axe to all stocks without much regard to how an individual company may be impacted. These types of “events” trigger huge market moves but their longer-term effect may be rather limited.

At a company level, the airlines and travel related companies, especially cruise line companies were some of the hardest hit.  Apple also took a beating as much of their supply chain is in China, but also many of their consumers are Chinese.  Many tech stocks such as Netflix were down almost 3% Monday but have very little exposure to Coronavirus. Perhaps Coronavirus served as a catalyst to bring the stock price closer to fair value in a market that may have gotten a bit ahead of itself.

Regardless of whether the impact of the Coronavirus is deemed to be the catalyst of a needed sell off, true global economic impact or a mix; it makes the Sunday Blueleaf and drops in your portfolios no fun at all.  To keep it in perspective though, market corrections (10% below recent high) are very common.  In fact, they occur 2 to 3 times a year historically, though recently we have had few pullbacks.  Here is a great article on market corrections Click Here. 

Famous investor Warren Buffet summed it up very well on Monday “It is scary stuff but I don’t think it should affect what you do in stocks.” Buffet later said “You don’t buy or sell your business based on today’s headlines. If it gives you a chance to buy something you like and you can buy it even cheaper, you’re in good luck,” he said, adding that “you can’t predict the market by reading the daily newspaper.”

As advisors, we are invested in the same markets as you, receive the same Blueleaf reports, so can empathize not only as your advisor, but also as a fellow investor.  Your portfolios are crafted with your goals in mind including considerations of pullbacks and corrections.  If you feel uncertain or just want to talk through your portfolio or financial plan, always feel free to pick up the phone or send an email, we’re here not only during good times, but also when the market isn’t fun.

Ryan Turbyfill, MBA

 

https://www.thebalance.com/what-to-know-about-global-market-corrections-4161087

https://www.marketwatch.com/story/coronavirus-update-79339-cases-2169-deaths-clusters-emerge-in-iran-and-italy-2020-02-24

https://www.cdc.gov/flu/about/burden/index.html

*The Dow Jones is an unmanaged index of 30 large industrial companies. It cannot be invested in directly.