Posted March 2, 2020

Coronavirus Contagion

A month we will not soon forget began with the S&P 500 hitting several new all-time highs as economic numbers improved and China seemed to be succeeding at containing the Coronavirus. We even had a report the Chinese had come up with a vaccine. Halfway through the month the S&P 500 was sitting at a new all-time high as we took a break for President’s Day weekend. After the long weekend Apple reported revenue would not meet expectations for the current quarter due to the virus, but with one week to go in the month the S&P 500 was still 3.5% higher for the month and on track for the best month since last June. The last week of the month selling pressure accelerated as the virus spread to other countries and the flu became an all-out panic. We ended the month with the worst week for stocks since the 2008 financial crisis. When the dust had settled the S&P 500 had lost 8.4% for the month and is now down 8.5% for the year. Oil prices plummeted 12.3% and the rate on the 10 year Treasury dropped 25% to the lowest level in history.

The month began with news that U S manufacturing activity expanded in January for the first time in 6 months. China announced they would add stimulus in an attempt to buoy their sagging economy and they also said they would reduce tariffs on some U S goods. We ended the week with a government jobs report that showed a far better than expected 225,000 new jobs were created in January. The S&P 500 responded to the plethora of good news by rallying 3.2%. The second week saw more new all-time highs as investors shrugged off any potential impact from the Coronavirus. The week ended with a gain of 1.6% and on track for the best month since June. The third week began with President’s Day, followed by Apple’s announcement. Interest rates continued to drift lower and gold rallied, but there was little concern about the virus. The week ended with a loss of 1.3%. The final week of the month is one we will remember for a long time. The week began with a 112 point drop in the S&P 500, its worst day in 2 years, on news the virus was spreading to other countries. By the end of the week the selling had hit full blown panic as investors started speculating on the virus shutting down the global economy and pushing us into recession.

March is historically an average month for the market with a gain of .5% and a higher close 60% of the time. Reaction to the Coronavirus will continue to drive the market. It is impossible to know where buyers will come in because there is no way to measure fear. It is clear the virus is going to cause a global slowing and the unknown extent of that slowing is causing the market turmoil. There are 3 scenarios: 1. The virus is contained, either by a vaccine or simply warmer weather, and the market works its way higher 2. The virus and fear continue to spread for an extended period leaving the market vulnerable 3. Fear of the virus causes people to stop living their lives and retreat to the safety of their homes, similar to 9/11, and we enter a worldwide recession. It seems logical to assume the end of the flu season in a few weeks could help end the fear that is driving this market. We have been doing some buying for folks with excess cash and believe there are good stocks that are on sale.

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