This morning I sat down to do a little research regarding the market and the effect the Coronavirus is having on it. Much of the information I received was from Chief Economist, Brian Wesbury of First Trust. It was really interesting looking back to the past market reactions from different epidemics.
In the past 30 years, we have seen many epidemics and pandemics – HIV/AIDS (1981), Pneumonic Plague (1994), SARS (2003), Ebola (2014), Zika (2016), and Measles (2019). I had a personal experience when the SARS pandemic was occurring. In 2003 my parents had gone to Hong Kong to adopt one of my eleven sisters. When they arrived, they were made aware of the serious virus that was running rampant in China and was quickly spreading into Hong Kong. While they were there, my dad was asked to speak at a Church group, and at the conclusion of the talk two nurses told him about the awful things they were seeing in Beijing. That patients as well as their doctors were dying in hospitals, and my parents needed to leave Hong Kong immediately. That is when the gravity of the situation really hit home for them. On the day they arrived home with my little sister, Sammy, the rest of my family anxiously waited for them in the airport. As soon as their plane landed, and they stepped off the plane they were met with news cameras and reporters. People were in a panic about this plane that had just landed in Detroit from Hong Kong. A friend of mine’s parents had seen my family on the news and told her she was no longer allowed to hang out with me – as if being 15 wasn’t hard enough! While I personally wasn’t in Hong Kong at the time, the small effect it had on my family gave us a new appreciation of how serious these epidemics can be.
The Coronavirus is a human tragedy. One life lost is one too many, but when it comes to the market and your financial plan, it’s important to have a little perspective. In 2003 during the SARS virus, the S&P 500 fell by 12.8%. During the Zika virus, the market fell by 12.9%. Within 6 months they market was up 14.6% (SARS) and 12.0% (Zika), and within 12 months it was up 20.8% (SARS) and 17.8% (Zika). There are some other examples that all have a key similarity. They all passed – and the market recovered reaching new highs.
Brian Wesbury’s stance is that the U.S. economic view has not changed. We started the year with solid economic data and expect around 2% growth in Q1. Much of the impact from the Coronavirus will come in Q2, but since demand will be high to replenish those inventories that are being lost due to factory shutdowns in China, the second half of the year should be strong. It will be interesting to watch as companies begin to realize the importance of diversification regarding where the location of their supply chains are held. We expect this trend to be accelerating moving forward.
In life, there are things we can control and things we can’t control. The market falls into the can’t control category. We rely on your completed Riskalyze so we can fully understand how comfortable you are with large market downturns. Another strategy we use is segmenting your money so your projected cash flow for the next 3-5 years is not affected by these market downturns, and you can sleep well at night when these things happen.
I hope you find this information helpful. Feel free to contact us if you have any questions and/or would like to meet.
The opinions voice in this material are for general information only and are not intended for specific advice or recommendations for any individual.