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.
COVID-19, as it is formally known, has now shown up in Florida. As I write this at the end of April in 2020, there have been 52,042 U.S. deaths. These have occurred to a large extent in vulnerable, elderly, and sickly populations. 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 - fully 98% - who get the virus recover from it. The same population which would be vulnerable to any other wintertime virus is vulnerable to this one.
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. There are several drug regimens that look promising and await FDA approval. Meanwhile, in this week's news cycle, we were told what we already know: these best cure for a virus is sunshine, rest, and good nutrition. The body is, after all, a self-healing mechanism.
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 and drop in consumer spending. If the shops are closed, and consumers not allowed to leave their homes, there is no doubt that a recession would follow.
The Dow hit a low of 18,592 on March 23rd. Before the virus it was flirting with the 30,000 level. As I write the Dow is 23,775, up 5183 points since its bottom, or nearly 28%. The Federal reserve has cut rates down to .25%. With my general glass half full attitude, I'd say we have a nice recovery underway from the March low. But it is certainly volatile and choppy.
A volatile year as we head toward the November elections. Will there be a quick recovery? We can’t tell that until we see it in the rear-view mirror. But we suspect so. As noted, we've already recovered 28% in a little more than one month.
Nothing. At CameronDowning we’ve invested each individual according to his risk tolerance. What's happened in the last month is small potatoes compared to 2008, when the market was off by some 45%. We’ve employed stop orders, and most 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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