With the quickening pace of developments worldwide in response to the Covid-19 virus, we thought it beneficial to share some of our observations and perspective on where we are now. As we state often, we are not in the predicting business and won’t be changing that now. But we are most certainly in the business of thinking through “how should we now behave?” In that spirit, we offer up the following:
THE VIRUS: as expected, the number of cases around the world and in the US has spread although quite unevenly. China, South Korea, Italy and Iran are experiencing the highest case counts with Spain moving up the list. In the US, at this writing, cases number over 3,000 with nearly half of those in Washington and California but with every state but West Virginia affected. As a result, mass shutdowns – which can be plenty fearful! – have spread faster than the virus itself with all sporting and entertainment events cancelled and with schools and churches following suit. Today, California, Illinois and Ohio ordered all restaurants be limited to carry out. Many millions will be working from home. Air travel may soon be grounded. More than enough to unnerve anyone.
THE FINANCIAL MARKETS: Markets have behaved, as they historically often do, to uncertainty. Uncertainty on the eventual spread of the virus; uncertainty on the scale of the economic slowdown. After recording its all-time high on February 19th of 3,386, the S&P500 made its fastest trip ever into bear market (20% or more off) territory, covering that distance in just 16 trading days. The previous record? 1987, when it took fully 8 weeks to move 20% lower. Lots of stress out there!
THE NEXT STEP – HOW SHOULD WE BEHAVE? We can share that, yes, we are washing our hands many, many times a day, and no, we are not touching our faces… or our retirement accounts!
We can also share these observations:
- Some improvements in the earliest impacted countries: China’s factories are ramping up again, Japan and South Korea, after mass closures and and broad-based virus testing, have seen a decrease in their rates of new cases (“flattening the curve”, as the pundits call it).
- Congress has – in very rapid fashion, for a change! – passed a relief bill with another coming.
- Federal Reserve action: dropped its interest rate from 1.5%-1.75% all the way to 0%-0.25%
- Broadly available testing for the virus in the the US appears to have shifted into high gear.
- Not to belittle the current situation but to lend some context: In 2010, the H1N1 virus infected 60 million people in the US and lead to nearly 13,000 deaths.2
WHAT WILL HAPPEN NEXT?
We, of course, cannot know or predict what is unknowable. Neither can investors generally, so funds have moved to cash, Treasuries, gold, and so forth, until the major uncertainties work themselves out.
In the meantime, we will be watching these developments:
- With expanded testing, the number of cases in the US can be expected to spike. Uncovering more cases sooner could hasten the peak of the spread.
- When does the number of active cases peak? We’ll be watching for how rapidly the number of recoveries increases… that “flattening of the curve” time should begin to lessen the financial market’s stress over the uncertainty of the duration of the virus’ spread
WHAT SHOULD WE DO? All of the closures and work-from-home regimen in the coming weeks should help the US reach the “other side” of the virus outbreak sooner. Likewise, the substantial fiscal (Congress) and monetary (the Federal Reserve) economic boosters may lead to a 2nd half of 2020 which turns out to be more robust than the analysts now expect.
So… what to do? Be vigilant, be mindful in public spaces, be sensible, but do NOT be fearful. This virus, as have all others, will fade in time. We cannot control when that will happen, but we can always control our own behavior as reasoned investors. Think, as best you can, beyond the headlines of the day and into the 2nd half of the year.
ALSO: Should any questions or concerns remain, please do call us! We want to hear from you and are ever glad to review any aspects with you.
Be of good cheer
1 “Milestones of Mass Terror”, Nick Murray, March 12, 2020.