Markets and the Coronavirus

March 2, 2020

The Coronavirus has dominated the market’s attention and indexes appear close to wrapping up their worst week in over a decade. As of the end of Thursday most broad indexes in the US and across the world had fallen about 12% to 15% from recent highs. US indexes are in correction (greater than a 10% decline) for the first time since late 2018.

Last year markets were fairly quiet with few trading days of large moves. There were only two US market downturns and both were relatively light and brief. Normally we get three to four meaningful market declines per year. Entering 2020 we believed US stock valuations were at fair levels but were certainly not cheap. That meant that any unexpected news of risks to growth or earnings would likely cause markets to become more volatile, and a global illness obliged as the unexpected news.

So while the pace of the market drop has been surprising, the fact that a fairly-priced market experienced a periodic correction because of a new risk to global growth is not.

There is no doubt that the coronavirus has done and will continue to do economic damage on top of the cost to human life. The likelihood of the US entering recession remains low, but the market correction is close to turning into a bear market in which a recession is already priced. Whatever the effects of the coronavirus, they will almost certainly be temporary and if so, permanently lower market prices are unwarranted. While risks remain as they always do, this pullback represents one of the few times over the last decade when cash could be deployed into markets at meaningful discounts to recent highs.

As always we welcome your questions about markets and your portfolio and hope you will call or email us with these. We hope you have a great weekend.

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