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Coronavirus & Market Update

On January 30th, the World Health Organization (WHO) declared a public health emergency regarding the outbreak of COVID-19, also known as the “coronavirus”.  The virus stayed relatively contained within Wuhan, China for several weeks, and aggressive measures were made to contain the spread.  The seriousness of the virus is hard to tell, and those infected have had mild to severe illnesses with some resulting in death.   As of today, no cure or vaccines are available, which has caused the global community to prioritize containment and treatment for the virus.  Moreover, some reports show declines in the number of new cases each day, a positive sign.  Even so, it is likely that the virus will continue to spread.

A few things to consider, according to the WHO:
  • Currently, 77,780 cases of which 3.4% have been fatal.
  • Within the Hubei province, the death rate was 4%, while outside the province it was 0.8%.
Mortality Rate vs the Common Flu vs Past Coronavirus Outbreaks:
  • The 2020 Flu season in the U.S. has had 29 million infected people with a historical mortality rate of 0.1%.
  • -COVID-19 has already killed more people than SARS (10% mortality) and MERS (23% mortality) combined due to its higher case count.  Even so, its mortality rate is far lower.
Markets

As you are aware, financial markets function based on investors, estimates about the future.  When the future is clear (seemingly), markets are calm and prices reflect a consensus of participants’ views about profits, growth, etc.  When uncertainty enters the market, it becomes evident very quickly that not all participants are long-term investors, and volatility becomes the norm.

While we cannot know what will happen with the coronavirus, we have experienced epidemics throughout market history from viruses that have been far more lethal.  History has shown that initial reactions are sharply negative, which we have experienced in recent days. However, six months and beyond these reactions have had little impact on prices.  One factor that we are watching closely is the disruption caused by shutdowns in manufacturing and travel.  We do believe this will hit many companies’ earnings this year, but again, we are hopeful that the awareness and efforts by the global community will help bring this situation to resolution.

Conclusion

This is a difficult situation, and the human element of lives lost and disruption caused is saddening.  We remain hopeful that the impact in lives lost will be minimal.  On the financial side, at Bridgeworth we build diversified portfolios in advance of volatility.  We recognize that volatility is a regular part of investing and that it’s often too late to think about diversification after the fact.  We also know that having a steady hand and resisting the urge to react to short-term issues has helped investors “climb the wall of worry” that is always present in the investment markets.

 

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