As global concern about the spread of the COVID-19 virus grows, it was inevitable that the markets would suffer some buffeting along the way. The interesting thing about illness-induced market volatility is that in the almost 28 years of my career, we have had many experiences with similar events. Since 1992, we have seen outbreaks of Pneumonic Plague, SARS, Avian Flu, Dengue Fever, Swine Flu, Mad Cow Disease, Cholera, MERS, Measles (twice), Chikungunya, West Nile, Zika, two outbreaks of Ebola, and even the “Asian Contagion” (which was a sickness that spread among Asian currencies). Each of these had varying impacts on the markets, some large, some barely noticeable.
The important thing to note was that none had a material impact on the markets that lasted long, and none led to a reversal in a bull market or tipped the world into recession. Indeed, perhaps the most significant was the Asian Contagion, which occurred in 1997 just as US markets were beginning their tear into what became the Dot-Com bubble. The chart below illustrates the timeline pretty clearly:
Attempting to time market volatility in an outbreak such as this can be disruptive to your portfolio. Since the virus started garnering daily headlines in late January, the US Market has been extremely strong, with multiple records being set in February. Had you tried to avoid a drop by getting out in late January, you would still be behind the curve with portfolio performance.
More important than stock prices is the tune of the underlying economy. In the shadow of the virus news, US companies just completed a very strong Q4 reporting season. The S&P composite earnings growth, which was expected to show a slight decline as recently as mid-January, reported a profit increase of 3.1% for Q4…6% * (Li, 2020) if you exclude the energy sector. Those are strong numbers and bolster my confidence that the economy and the markets can bounce back quite quickly once the fear over the virus subsides.
Of course, it is possible that “This Time is Different”, so we must remain diversified around the globe and stay on top of the economic impacts the virus may have. However, the analysts I follow most closely are talking more about the opportunities for investment being created by COVID-19 fears and are strategizing as to how to capitalize on them in the coming months as the situation is resolved.
As always, we are happy to answer your questions or concerns!