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Coronavirus, the Stock Market, and Your Portfolio

Coronavirus is a new type of disease spreading from person to person. Although it’s currently unknown how easily or sustainably this virus is moving between people. Investment markets recently experienced increased volatility, with positive and negative fluctuations often linked to the status of the Coronavirus outbreak. Stock market volatility increased after cases grew in Italy, Iran, and South Korea.  Investors have become concerned that the disease has spread many miles from its Wuhan, China origination point.

Over the years we’ve seen many outbreaks. The frightening thought of an epidemic can cause the imagination to run wild. Do we think the outbreak could slow economic growth as travel, large gatherings, and non-Coronavirus medical initiatives pause? Yes, and there’s a reasonable chance that will happen. While investors should take precautions and prepare accordingly, the new outbreak’s unknown qualities from a medical perspective do not necessarily translate to a new investment rule book.

Anticipating the Impact of Coronavirus on the Stock Market

One resource to anticipate the impact of this outbreak comes from the American Funds’ deep economist team. They offer the following summary (updated February 13, 2020).

  • The Coronavirus outbreak will likely stunt global economic growth in the near term.  American Funds elaborates “It’s likely global economic growth will experience a V-shaped recovery characterized by slower growth in the first half and significant acceleration in the second half of the year. The U.S. economy will probably follow the same course.”
  • Our economists expect a V-shaped rebound in the second half of the year.
  • As with past outbreaks, we expect markets to power through it over the long term.

If American Funds’ view holds true, this doesn’t sound very apocalyptic. While the long history of outbreaks affected patients and families in a way that invoked sorrow, inevitably, they also invited their own “but what if?” questions to investors. Fortunately, apocalypses just don’t occur very often.

Learning from Epidemics Past

As a counterpoint to the litany of worrying headlines, plotting past epidemics against a global stock market growth chart provides perspective. A February 24, 2020 analysis by the Schwab Center for Financial Research plotted the experience of the SARS outbreak, another full-fledged Coronavirus, along with 12 other frightening epidemiological events.

Using the MSCI World stock index as a backdrop, we see a rally after the SARS outbreak (clearly, SARS did not cause the subsequent rally, but it didn’t prevent it either). While an epidemic may seem like an obvious reason to exit the investment markets, in the case of SARS, it ultimately led to regret those who sat out. Looking at the chart below, we see this was not an unusual event; in fact, all outbreaks have powered through over the long term, just as American Funds’ economists suggest.

Protecting Yourself and Your Portfolio

So what should individuals do?

SYM is tasked with updating our views and potentially our investment positioning in light of large-scale events such as the current Coronavirus outbreak. We commit to ongoing diligence to uncover any facts that would motivate a responding tactic on our clients’ behalf. For now, it seems we should stay the course.

With that said, we can’t reduce some feelings to a bullish or bearish conclusion. Our hearts go out to the families who worry or suffer, and we hope for quick outbreak containment and treatment.

The CDC and Coronavirus

While we are not medical experts, the CDC provides some helpful tips including tips for travelers. For our expat clients who are reading this abroad, we request you pair the CDC’s guidance with local public health resources.

The CDC’s Coronavirus prevention and treatment guidance:

The CDC’s travel warning with regard to the Coronavirus:

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