Given the volatility in the financial markets this week, we wanted to provide you an update on the current market unrest. The Coronavirus is a key concern this week for obvious reasons. While we are concerned about the humanitarian toll and wellbeing of people worldwide, we will attempt in this email to put the economic impact of the virus in perspective by reflecting on this epidemic, as well as prior health scares we have endured and overcome.
Prior to the spread of the Coronavirus (COVID-19), forecasts for global economic growth in 2020 were rosy. After all, Phase I of the U.S. China trade deal had been signed, Brexit was approved in a general election, and the USMCA had been passed by the U.S House of Representatives. In addition, expectations for corporate earnings in 2020 were for single digit growth – a bullish sign for stocks.
Things changed on December 31st when China alerted the World Health Organization of a pneumonia virus in the central Hubei province. Despite aggressive steps by China to contain the virus, the disease has spread to become a global public health emergency and has claimed 2,800 lives worldwide, and counting. As supply chains in China have shut down for precautionary reasons, the economic impact of the Coronavirus has quickly reverberated around the world.
Similar to the SARS virus in 2002 and 2003 (see enclosed chart), uncertainty today is high and markets are on edge. As Coronavirus updates come in each day, we are closely reviewing the facts and monitoring the financial markets. On a positive note, governments around the world are willing and prepared to initiate monetary and fiscal measures to support business conditions.
In closing, we are also aware that past pandemics have ended in swift economic recoveries that have been difficult to time. With U.S. stocks now in correction territory, potential opportunities are being created for the patient investor with a long-term time horizon.