What We Know So Far
We were anticipating volatility this year because of the high valuations in the stock market and it usually takes an event to spark that snowball effect. Politics were in the mix but it’s the unknown that has caused fear in investors. The Coronavirus was mentioned by 20% of respondents in the most recent University of Michigan Consumer Sentiment Survey but consumer sentiment was up +7.7% from this time last year. Job reports have held up strong which would give a path to the markets recovery so long as this epidemic did not reach massive levels.
Historically Wall Street has shrugged off such epidemics with the 12 month change in S&P 500 stocks increasing +20.76% after the first occurrence of SARS and +10.44% after the first occurrence of Ebola. (Source: Dow Jones Market Data)
We don’t know what we don’t know, but much should be learned in the next 9-12 weeks where you normally see a decline in cases of the traditional flu. Though it is likely to spread in the US, the rate of newly diagnosed cases worldwide may be slowing and if the number of contracted have been underreported, then the current fatality rates could possibly be inflated.
Though it seems too early to tell what this pandemic is, one thing that is known: hysterias sell advertising. CNBC brought back it’s “Markets in Turmoil” segment which we last saw in Dec 2018, and 12 months later the S&P 500 Index was up roughly +32%. Since 2010, the 12 months following this CNBC segment has been positive 100% of the time and averaged a return of +22.2%. Showing how emotions can affect the stock market. (Source: https://www.pensionpartners.com/)
Gold, bonds and lower volatile stocks have held up relatively well and could create opportunities to seize. That means stocks are cheaper and dividends are higher as a percentage of share price but whether that panic will continue, we simply cannot say as of yet. Know that we are monitoring the situation closely, remember to wash your hands, and we hope to create some opportunities out of all this turmoil.
The Detroit Free Press interviewed Sam Huszczo, CFA, CFP on the Stock Market’s coronavirus fears in the top link below: