New Global Threat

After posting significant gains in 2019 and the beginning of 2020 the markets are now showing signs of vulnerability as investors’ focus has shifted to the new coronavirus (COVID-19). This new global threat has investors worried of its potential effects on global markets. Currently, it seems that the infection point has stabilized in China, but the virus has continued to spread around the globe with cases now reported in­­­­­­­­­­­­­ 43 countries. While we do expect the coronavirus to continue to spread, the question at hand is will it cause a global recession?

With much of China in lock down and production workers unable to do their jobs, shipping from China will be greatly affected causing supply chain issues around the globe. This will cause a ripple effect and slow economic activity globally in the short run. Longer term, as new reported cases in China slow, and supply chains are shifted from China, economic activity should begin to normalize. It is important to note that after experiencing initial volatility during past events like Zika in 2016, Ebola in 2014 or SARs in 2003, the markets went on to hit all-time highs shortly thereafter.

6-month        1 year

SARS    April 2003        +14.6%         +20.8%

Ebola   March 2014      +5.3%           +10.4%

Zika      January 2016    +12%          +17.5%

There is still much unknown about the COVID-19 virus and the extent of how widespread it will become but as with all epidemics in the past, this too will pass. As I write this the markets are currently 7% off their all-time highs. Even during normal bull markets, a 10%- 15% sell off is expected. With the short-term volatility expected to continue, from a technical standpoint the intermediate and long-term picture has not changed. 

The markets have gone from an overbought status to a more neutral state. Most companies are now at or below the 50 Day moving averages. Unless there is a change in the non-China death rate well above what we have seen, any further move down could be viewed as a buying opportunity. Faced with a potential economic slowdown the expectation that the Fed may reduce interest rates has risen sharply and would have a positive effect on the markets.

There is still much to know and understand about the coronavirus and news is developing rapidly. We continue to monitor any new developments and constantly monitor and evaluate your portfolios and investments. The signals that would trigger our retreat from markets have not occurred, but we will respond if markets move beyond a short-term pattern. As things change and new developments become clear, we are poised to make adjustments to your portfolios that are necessary to help protect your assets.