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Market Minute: Coronavirus

By: Devan Robinson

"Your success in investing will depend in part on your character and guts and in part on your ability to realize, at the height of ebullience and the depth of despair alike, that this too, shall pass." 

- Jack Bogle, Founder of Vanguard


I wanted to provide some thoughts on the market implications of the Coronavirus outbreak.  Quick summary below followed by more data for those interested.

Quick Summary

The first 10% correction of 2020 has arrived!  In the near-term I expect market volatility to persist but the long-term forward tread of markets will continue in 2020.  The Coronavirus is nothing short of a human tragedy but for markets it will prove to be transitory.

What happened last week?

Rising concerns about the spread of Coronavirus outside of China triggered an 11.5% decline in stocks last week.  This move marked the first 10% correction of 2020.  In an average S&P 500 market year investors will see one or two corrections (-10%) and a bear market (-20%) every three or four years.  Since 1970 the average intrayear decline is a little over 15%; last week’s move puts the S&P 500 right on the average line.  In short: despite what the media suggests this is an ordinary decline for markets.

While the speed of the decline was fast the severity of it was nothing short of average.  Corrections can be confusing and scary at moments but it is important to remember that they are expected when investing for the long-run.

What happens next?

In the near term I expect further market swings.  Volatility is elevated and will continue to be until more data develops.  There is simply still a lot we do not know and it will take several weeks for reliable data to develop.  The Coronavirus impact is meaningful and tragic in the short-term but not permanent in the long-term.

I believe a substantial element of last week’s market selloff was pricing in the variety of tragic outcomes.  Markets tend to assume the worst until shown otherwise.  This is a pattern we have persistently seen over and over again throughout this bull market.  Earlier in the year it was conflict with Iran, before that it was the yield curve inverting, before that was the Trade War with China, before that was Brexit, etc.  The wall of worry is a persistent feature of markets that rewards patient investors and washes out those without a plan in place.

What does this mean for long-term investors?

For long-term investors I believe the best thing you can do is sit tight and follow your long-term plan.  The Coronavirus outbreak has not altered it.

Let’s take the price of Apple stock as an example.  At its peak Apple traded at $327.85/share and at the lows of last week it traded around $256/share.  When was the last time Apple traded that low?  November 1st, 2019.  I am still eating my son’s Halloween candy from that time.  Despite what the media says the market is hardly in uncharted territory.

Thoughts & Interesting Data

The heart of the Coronavirus epidemic is China.  Therefore I like to keep an eye on China to potentially see clues as to how this could all pan out for us across the pond.  Below are some items I’ve been pondering:

Apple CEO Tim Cook says that their factories in China are reopening.

Starbucks has reopened over 85% of their locations in China.

The best-performing global market since the Coronavirus turmoil began is…China?  This data point has been stuck in my head all weekend.  

I am a firm believer that price is always the most important data point in markets.  I cannot say for sure what the price of Chinese markets are telling us but it is an interesting clue nonetheless.

Enjoy the week everyone,

Devan

The foregoing content reflects the opinions of Fairlead Financial Group LLC and is subject to change. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.

 Past performance may not be indicative of future results. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful, or that markets will recover or react as they have in the past.