Coronavirus Perspective

February 28, 2020 | Our Observations on the Coronavirus and Its Effect on the Market

As news surrounding the coronavirus evolves and the market responds, we are closely monitoring the situation at is relates to our clients’ portfolios. Due to the high level of uncertainty surrounding the coronavirus, our observation is that market participants have shifted their attention from the quantifiable (revenues & earnings) to the unknown (headlines). Our purpose is not to downplay the seriousness of the outbreak – as of this writing there are ~80,000 reported instances with ~3% mortality rate – but to provide some historical context. Drawdowns such as these (~-7.5% since 2/19 close) do occur during a bull market and if you feel uneasy, we should revisit your investment allocation and liquidity levels to ensure they are appropriate.

The virus is serious and sure to cause unnecessary suffering and business interruption. Specifics of the fatality rate, reproduction rate and incubation period are largely unknown; and the virus continues to appear in new geographies. All of these factors combine to harm both the human psyche, and economic growth. While this period will be difficult and volatile, it will also be finite. The data below shows the market impact from the last 5 major global health scares:

It is difficult to gauge how coronavirus will compare in terms of impact, but a clear trend emerges: there is an initial market reaction, followed by a fairly swift recovery as soon as the outbreak appears to be under control. Long term investors like us look at this as a bump in the road, rather than something that alters our course.

As a point of reference, the CDC estimates that the flu has caused between 12,000 – 61,000 deaths per year in the U.S. alone since 2010. While we cannot be sure when and how coronavirus will be contained, we feel strongly that it will not permanently impair American business – a powerful and long term growth engine.