On Coronavirus: Markets Did What Markets Do

By Glenn J. Downing, MBA, CFP®

Last week we saw the Dow formally enter correction territory, meaning the market dropped by more than 10%.  This is what markets do:  they go up, until the herd feels like its time to take some profit off the table and sell, and then they go down.  And then back up again.

This correction is not like others we’ve seen – it was/is driven by a specific fear, namely the Coronavirus’ effect on world economies. 

What do we know abount Coronavirus? 

COVID-19, as it is formally known, has now shown up in Florida.  As I write this, there have been 2 U.S. deaths.  These have occurred in vulnerable, sickly people.  From the CDC website, the symptoms are mild to severe respiratory illness, with fever, cough, and shortness of breath.  Many patients get pneumonia in both lungs.  The statistics coming out of China are unreliable.  It seems that most people who get the virus recover from it. Also, the same population which would be vulnerable to any other wintertime virus is vulnerable to this one.

This all sounds familiar to us.  Think back, and you’ll recall other disease scares:

  • In 2018 it was Ebola
  • In 2016 it was Zika
  • In 2014 it was Ebola
  • In 2012 It was MERS
  • In 2010 It was Swine Flu
  • In 2008 it was Avian Flue
  • In 2004 it was SARS

As we recall, in each case the warnings were dire, a vaccine was developed, and within a few weeks the disease was gone from the headlines.  We suspect the same will happen with Coronavirus.  Israeli scientists announced last week that they are on the verge of a commercially viable vaccine. 

Markets reacted strongly to this particular threat. 

There are strong political undercurrents, and the media drumbeat about this virus has traders spooked – not so much about the virus itself, but about the disruption to global supply chains.

Is there a silver lining? 

Well, today as I write this the Dow is up nearly 1000 points.  On Friday the Federal reserve said they’d be looking at a rate cut at its March 19-20.  Today’s rise is the market pricing in an anticipated rate reduction of at least 50 basis points. 

What do we expect going forward? 

A volatile year as we head toward the November elections.  Is last week’s drop over?  Will there be a quick recovery?  Can’t tell that until we see it in the rear-view mirror.  But we suspect so. 

What should I as an investor do? 

Nothing.  At CameronDowning we’ve invested each individual according to his risk tolerance.  What happened last week was small potatoes in comparison to 2008, when the market was off by some 45%.  Still, we’ve employed stop orders, and some positions have been stopped out.  This means we had in place automatic sell orders across positions, and if the price of a given security traded down through a stop price, the sell order would execute and the client would receive the next traded price. 

Please hold tight everyone.  There is no need to panic.  We’ve bought good solid investments in your accounts, and good stuff is still good stuff even when the market price changes. 

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