Coronavirus has dominated headlines for most of the year so far, and it’s become the most frequently asked question we’ve received from clients in regard to the security of their portfolios. For most of the year, the markets mostly ignored CV and have been growing rapidly because the investing public finally accepted that recent economic strength was much more than an illusion. Over the past several days, however, the S&P 500 has declined about 7.8%. I expect that it will decline tomorrow again by about 3% and settle in the range of $3025 - $3040 (which is significantly undervalue by several valuation methods other than over-used PE ratio). I believe we’ll sit there for a week or two and then the markets will begin to recover. In this article, I’ll attempt to highlight a few points about the Coronavirus and its impact on the economy and address a few ways in which we’ve set our client portfolios up to be insulated from the impacts of the virus. I’ll also provide links to a few good outside resources.
First, it’s important to remember that if you’re a client of ours, your portfolio is NOT the S&P 500 and, regardless of the specific investments you have, we have designed your account to lose less than the market in moments like this one. A quick napkin-scratch calculation at the close of the market today showed that most accounts are presently down about 3.5%.[1] That’s a lot less than what you’re hearing about in the headlines. A “market index,” like the S&P 500 is just a form of average, so while it is blown by the wind, our portfolios have a specific focus on eliminating specific risks as much as is possible. One of the specific risks we had prepared for before the CV headlines, was trade risk with China as a result of tariffs. That means that, on an investment-by-investment basis, we evaluated the companies our clients own to make sure they would be resilient in a trade slowdown with China. Because we were prepared and designed the portfolios with stability and dividends top-of-mind, the portfolios have the ability to grow with the markets and have the potential to mitigate the types of losses we are seeing in today’s news.
More about Coronavirus
Coronavirus infected humans, most famously in China, quite recently. Strangely enough, other forms of CV are very common, for example most housecats have a form of CV that doesn’t affect humans. The outbreak has affected a significant number of people and has been fatal for about 2% of those who have had the virus, though that number may be decreasing to 1% of those infected outside of China. Early on, the symptoms resemble those of the Flu, but become more severe as the virus progresses. The biggest challenge with CV, is that treatment and vaccination has not had time to develop. It has also been difficult to diagnose when specialized kits aren’t available to test.
While CV has been a tragedy, it has had a much smaller impact globally that the Flu has in the US alone, and immunologists and drug researchers are making significant headway in treating the illness. It is a relatively safe assumption that we will have ways to contain this virus and hopefully treat it effectively in the very near future.
Here is a link to a video on the virus from the World Health Organization: https://www.who.int/emergencies/diseases/novel-coronavirus-2019
Can Coronavirus damage the US Economy?
Assuming that the disease continues on the path it has been on, not really. The Chinese government has been working to control the spread of CV and it has impacted production. While this could lead to a short-term slowing of imported goods from China, it won’t bring them to a complete halt. The aggressive response in China will ultimately yield a better long-term result than a hands-off “come to work sick” approach. Even if we do have a more rapid slow-down in China, the effects on the US economy will be minimal as net imports for China represent less than 1% of GDP. The virus will have significant impact on specific companies whose products are dependent on Chinese manufacturers who face temporary shut-downs. Even these effects will be short term.
Here is an article from Brian Wesbury, who I believe to be one of the most reliable economists I follow: https://www.ftportfolios.com/blogs/EconBlog/2020/2/25/time-to-fear-the-coronavirus
Can the Coronavirus scare us into a recession?
In summary, even though coronavirus is making a lot of noise in the headlines and the market indices are down as a result, but we don’t see any reason to be concerned about your CoCreate Financial Portfolio or the US Economy in general.
[1] Disclosures: Note that this performance is not the performance of a specific investment, portfolio, or account, but is instead the rate of change for all firm assets. This may or may not accurately reflect the performance of your portfolio. Furthermore, past performance does not guarantee future results. While CoCreate Financial portfolios are designed to mitigate risks, they may not reduce losses in every imaginable circumstance.
