Happy Leap Year. When we entered 2020, I assumed the November presidential election would be the big topic of conversation for this year; however, I was wrong. This coronavirus, that no one saw coming, jumped to the forefront and is taking center stage.
All I can say is, here we go again. Last year, it was the trade tensions between the U.S. and China; now, it’s concern over a worldwide pandemic.
My Thoughts On This
Here’s my take on the matter. To start, I believe this an issue for short-term traders; not long-term investors, like you.
If the numbers we’re seeing are accurate, and death rates are close to the common flu, even if this virus spreads to every country in the world, including the U.S., long-term market ramifications will be minimal. In the short term, however, as this virus spreads, the stock market could see a significant correction, in conjunction with a global recession.
From a market perspective, the challenge is that the epicenter of this virus is in China. There are three reasons for this:
- China currently accounts for about one-third of global trade (10 times more than during the SARS epidemic), and roughly 20% of exports from South Korea, Vietnam and Japan.
- China accounts for at least a quarter of the world’s manufacturing.
- China has a history of corrupting statistics; therefore, our knowledge of infection rates and death rates is likely incorrect and much smaller than reality.
The world is watching and the market is reassessing expectations for the future in real-time.
The Short-Term Fallout
What is certain is that global supply chains will be disrupted. Apple – a bellwether of global supply and demand for goods – assembles most of its products in China. Moreover, China is the second-largest market for iPhones, and it’s BMW’s largest export market, totaling over 25% of their sales.
These are just two examples. There are millions more, and companies around the world will feel the impact.
And that’s just China. So far, Italy has quarantined 11 towns, as well, and the 60 million tourists who visit their country each year are rethinking their trips. The ripple effect is bound to spread to other countries, also.
With that said, the U.S. is in a good position, considering our low unemployment rate, strong wage growth, and robust consumer spending. If the virus spreads here (as of now, there are very few cases), we have a stable and well-organized health care system – making it more likely that we can contain it.
In The Long Run
While all of this can feel unsettling, there’s no need for concern. At the end of the day, it’s just another bump in the road for long-term investors. Heck, even for short-term traders, the predictions and GDP estimates are nothing more than guesses, at this point.
What we do know is that we’ve had the longest bull market on record, with 131 months without a 20% decline from its high. Thus, we’re due for another correction. These are normal and very healthy in the long run.
There’s no need trying to predict when, where and what will happen. Just stay calm and continue to invest. For someone thinking five to 10 years out, I feel certain that this will be a great opportunity to invest money.
As always, we’re here to help sort through what’s on your mind. Feel free to contact me if you’d like to dissect this further.