Market Update and the Coronavirus Concerns
People are wondering about Coronavirus and why it is impacting the stock market.
Remember SARS? Remember Avian Bird Flu? How about MERS? Do you know anyone who got any of these flus? Now that the media doesn't have the Mueller Report, Impeachment hearings, or anything else Trump-centric to run its news cycles on, Coronavirus has taken over....like a virus.
Many people are surprised to know their dog has likely been vaccinated against the Coronavirus. According US National Library of Medicine National Institutes of Health, a Coronavirus vaccine for dogs has existed for decades, but not for humans. (We do love our pets!) Hopefully, there will be a vaccine for people very soon.
In my humble opinion much of Monday’s sell-off was more related to a “Bernie Virus” than Coronavirus. Senator Bernie Sanders has a significant lead in the Democratic (now Socialist?) party primaries. Capitalist investors around the world, and especially on Wall Street, don’t like the idea of a Sanders presidency. I believe Senator Sanders’ increased odds of being the Democratic Nominee was largely responsible for the sell-off on Monday, February 24th. However, Coronavirus concerns added fuel to the Bernie fire (Wall Street was feeling the “Bern”.)
With China accounting for the majority of Coronavirus cases there is no doubt China has a problem. We don’t have any direct China investments. I have not believed in the China boom and still don’t. That said, certain industries are being hard hit, such as oil, by China’s economic impact from Coronavirus. China imports all of its oil and their demand has slowed since the outbreak began, which has created a glut of oil on the market, driving prices down. With lower oil prices that reduces the profitability of oil companies which are a major Dow component. However, there is an upside to cheaper oil.
Cheaper oil means more money in consumers pockets which means more consumer consumption, which is roughly 60% of the economic activity in the US. Consumer activity coupled with a 3.6% unemployment rate, indicates a recession is unlikely at this time. Now if the Coronavirus starts to create layoffs, and a significant portion of people lose their jobs, then this could change.
I am watching, learning, and evaluating everything that is happening. According to Forbes.com, biotech and pharmaceutical companies are pushing hard to find a Coronavirus vaccine, but this may take months. Health.com says, “Flu season is hitting its stride right now in the US. So far, the CDC has estimated (based on weekly influenza surveillance data) that at least 12,000 people have died from influenza between Oct. 1, 2019 through Feb. 1, 2020, and the number of deaths may be as high as 30,000. The CDC also estimates that up to 31 million Americans have caught the flu this season, with 210,000 to 370,000 flu sufferers hospitalized because of the virus.“ According to the CDC, there were only 14 confirmed cases of Coronavirus, and no deaths in the United States as February 25, 2020 - the most recent figures available. Compare that to the nearly 31 million influenza cases and 12,000-30,000 deaths from influenza and the data indicates you are much more likely to catch the 'regular flu' and have complications from that versus the Coronavirus. Let's all hope and pray that none of us catch anything.
For now, I will proceed by cautiously and judiciously watching the markets. I recommend taking precautions when you go outside, and liberal use of hand sanitizer. I will stay in touch with any pertinent developments. Until then, I wish you good health.
Thomas R. Graffeo, CFP®, CIMA®