The Coronavirus Spreads (Fear)
February 25, 2020
The stock market dropped dramatically yesterday, as news over the weekend about the coronavirus spreading to areas once thought unlikely hot zones. Italy, South Korea, and Iran all announced a spike in new cases and deaths as a result of the virus, sending the Dow Jones Industrial Average down 1,031.61 points (-3.56%). Other indexes, like the S&P 500 and the NASDAQ, didn’t fare any better, down 3.35% and 3.71%, respectively. All eleven sectors that make up the S&P 500 dropped yesterday, ranging from Utilities (1.16%) and Real Estate (1.34%) on the low end of the scale to Technology (4.19%) and Energy (4.74%) on the high end.
Unless you were out of the market on Friday, your portfolio most likely suffered losses. 98 companies of the NASDAQ 100 were down. All 30 stocks that make up the Dow Jones were down. Only 13 stocks in the S&P 500 rose on Monday. The S&P 500 closed Friday at 3,337. It opened Monday at 3,257, down 2.40%. The graph below shows this gap.
The chart to the above doesn’t accurately depict an investor’s inability to get out of the way of the losses experienced yesterday. The chart below shows the S&P 500’s price movement during the course of yesterday. As discussed, the S&P 500 gapped 2.4% from Friday’s close to Monday’s open. As you can see, the S&P 500 dropped another 1% in the opening minute of the trading day, making it almost impossible to have not been down with the markets.
Let’s Take Stock of the Situation
The spread of the COVID-19 coronavirus over the weekend sent investors into panic mode. Let’s put it all into proper perspective. So far this flu season, the CDC reports that there have been at least 29 million flu cases, 280,000 hospitalizations, and 16,000 deaths nationwide. That’s just in the United States.
To date, (February 24th), there are 80,154 confirmed cases of the COVID-19 coronavirus.
More importantly, the number of new cases has slowed down dramatically.
The number of people that have been totally cured continues to improve. To date, 27,688 people have been cured of the coronavirus.
The total number of active cases is 49,763 and dropping. The drop in active cases is primarily due to people being cured. Unfortunately, the 2,701 deaths do lower the number of active cases. 40,549 of these cases are considered to be mild in nature.
Thankfully, the number of serious and critical cases is also dropping. There are 9,214 active cases that are considered serious or critical in nature at this time.
While the number of total deaths continues to grow, the increase in the total number of deaths is slowing down.
The number of daily deaths seems to have peaked in mid-February and has been dropping (for the most part) since.
The Impact of the Coronavirus
At this point, we don’t know what the total impact of the COVID-19 coronavirus will have on the global economy or the markets. This is part of what is making investors skittish. In January, the International Monetary Fund (IMF) predicted that the global economy would rise from 2.9% in 2019 to 3.3% in 2020. On Saturday, the IMF said that it expected the coronavirus would likely cut 0.1% from global economic growth and drag down growth for China’s economy to 5.6% (from 6%). Some economists are predicting that the U.S. economy will only grow at a 1.2% to 1.5% annualized rate in the first quarter of 2020, down dramatically from the 2% consensus estimate at the beginning of the year. If China gets back to “business as usual” soon, then the impact of the virus on our global economy should be limited and short-lived. If the coronavirus continues to spread, or if we see an escalation of the virus, you will most likely see further disruption to business as we know it.
There have been several supply chain disruptions, as many factories in China remain shut down or are at reduced production. Names like Under Armor, Procter & Gamble, Honda, and Apple have all warned investors that they will be financially impacted by the coronavirus. Music and entertainment stocks, airlines and cruise lines, and hotels are all coming under pressure, and probably will remain under pressure for some time. Companies like Starbucks and McDonalds have shut down some of their stores in the hardest-hit regions of China.
What is Polaris Greystone Doing?
We are already slightly defensive in our portfolios. Should the markets continue to show weakness, we will continue to lower our equity exposure across all of our portfolio strategies, and we will move into defensive sectors of the markets.
We have been closely monitoring the coronavirus statistics to see if the virus is spreading more rapidly or if it is being contained. We are also monitoring the impact that the virus is having on all of the major economies around the world. It is possible that the coronavirus peaked in mid-February. Current data would suggest that’s the case. The spread of the virus to Italy and Iran is concerning, however. We will be closely monitoring these situations to see if late February’s slow down was the peak in the coronavirus or a respite before the virus turns into a full-fledged pandemic.
We will remain ever vigilant in monitoring the risk in the market and the holdings in your portfolio. As always, I welcome your questions and comments.
As always, I welcome your questions and comments, and I encourage you to meet with your Polaris Greystone wealth advisor to keep up to date with our service offering.
Jeffrey J. Powell
Managing Partner, Chief Investment Officer
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