Over the last week concerns over the spread of the coronavirus and its potential economic impact have caused global stocks to drop and interest rates to fall. As of February 27th, the S&P 500 Index has declined approximately 12% from its recent all-time high, causing the financial media to ring the “correction territory” bell.
We do not claim to have any idea how far this outbreak will spread, nor how many lives it will claim, before it is brought under control. We’re reasonably certain that many (or perhaps most) of the world’s leading virologists and epidemiologists are working on it and believe that their efforts will ultimately succeed. This of course is our opinion.
But if the history of similar outbreaks in this century is any guide, this would seem to be a reasonable hypothesis.
We draw your attention to:
- SARS in 2003-04, also originating in China
- The bird flu epidemic in 2005-2006
- In 2009, a new strain of swine flu
- The Ebola outbreak in the autumn of 2014
- The mosquito-borne Zika virus outbreak in 2016-17
On that first day of the litany of epidemics cited above, the S&P 500 closed at 855.70. Seventeen years and six epidemics later (including the current one) the Index is fairly close to three and a half times higher.
Because markets hate uncertainty there has been and will likely continue to be higher volatility in the short-term. However, it is doubtful that the long-term viability of companies like Exxon and Chevron, or Microsoft and Amazon, or Nestle and Coca-Cola are in danger. Despite the inherent volatility, we believe ownership in companies like those cited provide the best opportunity to protect your purchasing power and grow your families wealth over time.
Our advice is to remain focused on that which remains in our control: asset allocation, diversification, and rebalancing. For our retirees, we have built your fixed income portfolios to provide a minimum of 5 – 7 years of spending without the need to sell stocks. This allows us time to withstand stock market volatility. For accumulators, we will continue to dollar cost average into your diversified portfolios, perhaps accelerating buys as the market drops further.
We believe the coronavirus scare is another example of the market overreacting and therefore a buying opportunity for investors. Warren Buffett famously said, “Be fearful when others are greedy and greedy when others are fearful.” You may see activity in your accounts in the days and weeks ahead as we look to take advantage of this opportunity.FT Cornoavirus Economic Impact