Stock markets around the globe have been rocked this week by fears of the coronavirus spreading beyond its origin. The coronavirus impact to markets has been seen all week long. The S&P 500 saw 3% losses on Monday and Tuesday, was flat on Wednesday and had the largest single one-day loss in history on Thursday. As I write this, it looks like we could have the worst week in the market since the financial crisis.
Given the ongoing market turbulence and 24-hour news cycle on the outbreak, we first want to encourage everyone to heed our advice to continue to focus on the long-term. The markets have had similar downturns when we think back to SARS, Ebola, Zika and other similar public health concerns of the past decade. The markets also had quick recovery periods once the outbreaks were contained and we expect that with the coronavirus.
Vanguard economists expect the coronavirus to slow 2020 global economic growth by about 0.15 % points, translating into roughly $135 billion in goods and services delayed or not produced. This is predicated on how far the virus spreads, how long it lasts; how much fear inhibits travel, consumer spending, the supply chain for manufacturing and trade; and what actions governments take to stop the spread of the virus and boost growth.
BlackRock predicts global growth to edge higher this year, again similar to how past epidemics have created recovery periods. These recoveries are driven by pent-up demand from consumers and a restart in manufacturing as companies replenish their inventories.
We believe that investors should stay focused on their objective, maintain a diversified portfolio and only rebalance their allocations if their objective changes, their tolerance for risk has changed or their long-term capital market return expectations change. Rebalancing your portfolio to a more conservative allocation when markets fall (and prices are lower), followed by a more aggressive allocation later when markets rebound (and prices are higher) is a sure-fire way to jeopardize the role your portfolio plays in achieving your financial objectives. At Wiser Wealth Management, we construct our clients’ portfolios for the long run and to withstand these shocks in the marketplace when they inevitably occur.
The outbreak of the virus is a human tragedy and we feel for all those affected. However, it is far too early and too unpredictable in its nature to assess the ultimate impact of the coronavirus on economic activity and corporate earnings. The sooner the virus is confidently contained, the quicker the recovery in economic activity will be particularly given public policy stimulus will no doubt be deployed to assist in that recovery. However, the more the virus affects activity in other regions of the world and the longer the period of reduced economic activity in an effort to restrict the transfer of the infection, the greater the impact on corporate earnings and thus the likelihood of further declines in the stock market.
The main message we hope our clients hear and heed is to not be spooked by short-term market jitters related to the virus. The news and effects of outbreaks like today’s coronavirus, and outbreaks of other viruses in the past, are similar to natural disasters and have an immediate impact on economic activity. However, once the crisis is over, people return to normal activities leading to a resumption of economic output. In the meantime, we are closely monitoring this outbreak and the economic repercussions it is having on world markets.
As always, please feel free to call or email me as you have questions.
Casey T. Smith