Market Update - March 3. 2020

Hello,

With the market volatility recently, below are our thoughts on the COVID-19/coronavirus as it relates to the market and economy. 

Ironically, I’m heading to New York City today to visit investment colleagues at First Eagle along with roughly 100 other investment advisors from across the country. The lead portfolio manager, Matt McLennan is likely to expound on the coronavirus during this very informative annual conference.  Matt happens to be co-chair of the Board of Dean’s Advisors of Harvard’s School of Public Health and was involved in assisting the research and fight against the Ebola virus a few years ago. First Eagle is very tied into think tanks and heavily immersed in international policy and healthcare.

This virus has certainly grabbed the media spotlight, spooking everyone, and thus the financial markets across the globe.  It is a huge question mark, and the market hates uncertainty.  It resulted in the worst week since 2008 with the S&P and Dow both down over 11% cumulatively and almost 13% since Friday February 21st through February 28th (Source - M-star).   China is at the epicenter of this outbreak and was running at 50% economic capacity this past week or two, while affecting roughly one-third of the global economy.

Prior to the coronavirus, tight credit spreads, low risk perception, high stock multiples suggested that there were few obvious places where risk was being appropriately priced to begin with.  Increased fears of a potential COVID-19 pandemic highlight the instability inherent in a market seemingly priced for perfection as of late. (Source - First Eagle Feb 26, 2020)

While it is too soon to know the full impact of this outbreak, history has shown that responding to headline-driven events in a knee-jerk fashion is often not in an investor's best interests. Rather, it is at times like these that maintaining your focus on a disciplined investment approach is often the best course of action.
 
Thoughts and points relative the COVID -19:

  • Regardless of the low fatality rate, the severity of how this has spread to every continent except for Antarctica with some of the infected being unaware of how they contracted the disease implies many others are unknowing spreading the disease.
  • There are enormous supply chain and logistical concerns with an interdependent global economy.  Areas of China have been shut down.  Financial imbalances and vulnerability in China already existed prior to this outbreak as pointed out ad nauseam.  “Recent market dynamics highlight the instability inherent in a market priced for perfection and underscore why First Eagle seeks to build portfolio resilience from the bottom up.” (Source - First Eagle Feb 26, 2020)
  • Consumer confidence impacts household spending due to reactionary emotional response relative to topics such as travel.  For example, I was supposed to visit my brother in Italy next month where he is heading up “West Side Story” in Sardinia.  This is on hold essentially due to additional work relative to this outbreak. My visit would have resulted in money pumped hotel and airfare, along with the Italian economy via wine and pasta. Bottom line it is having short-term repercussions and we hope that this ends soon.
  • The US has been the gold standard around the world for identifying critical threats and attacking them in an ethical, non-biased fashion.  Stronger leadership is needed to convey the actual problem to the American public, listing the facts on how we are combating this and protecting ourselves moving forward.  The partisanship and radical populism on both sides in D.C. and abroad is a concern.
  • Social media and the “regular” media both present unique challenges today.  Fake news on all sides is a real issue.   Getting quality unbiased fact is difficult.  The spread of misinformation is disturbing during a time like this which can add to an already chaotic scenario, especially when thinking of poorer undeveloped nations with lack of healthcare and medical infrastructure needed to fight this outbreak should it continue. 

I look forward to some unbiased information in NYC over the next two days and sharing it with you shortly.  We are looking at this from many different angles and understand that this is likely a concern. The hope is that this is simply a new brand of flu that can be fought swiftly, and that the fatality rate will continue to be less than 2%.

Thank you for your business and your patience. 

Spring and sunshine will be upon us shortly,

Corey and Dan

Staub Financial, 5280 Dixie Hwy Waterford, MI 48329 (248) 666-1844 Office 248-666-1844 Fax 248-666-3084 Web www.staubfinancial.comFee-based investment advisory services offered through Sigma Planning Corporation, a registered investment advisor. Staub Financial is independent of Sigma Financial Corporation and SPC. Securities offered through Sigma Financial Corporation, member FINRA/SIPC Corey A. Staub, CFP®

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