Finance , Market Commentary
Extraordinarily Ordinary – February 2020 Commentary
“If you are distressed by anything external, the pain is not due to the thing itself, but to your estimate of it; and this you have the power to revoke at the moment.”
Marcus Aurelius
At times, the market responds to the news. At other times, the market is THE news. Investors had been hearing about the Covid 19 virus since mid-January but the market seemed quite content to shrug it off as being of no great consequence. And so it wasn’t until it was. After enjoying a 30% + ride in 2019, the good times continued to roll into 2020 with the market up another 4.7% for the year as of February 19th. The following day the market dropped out from under the investor and what followed was an 11.8% decline in just two weeks and 7.7% for the year. Investors with a 60% exposure to the stock market will see 5% declines in their February statements and 6% for the year drawing portfolio values back to their end of September 2019 values.
So, welcome to the sixth correction of this eleven-year-old bull market. In 2011, it was the European Debt Crisis, in 2013, the Fed Taper Tantrum as the US Federal Reserve sought to unwind some of the effects of the quantitative easing it had employed to combat the effects of the Global Financial Crisis. In 2015, it was the Chinese devaluation of the Yuan. In 2016, it was Brexit. In the fourth quarter of 2018: tariff wars.
Those searching for real information beyond the headlines were left scratching their heads wondering what they were missing. In the past three weeks China, ground zero of the disease, reported 13,002 new cases in the week of February 17th, 6,398 the week of February 24th and 415 for the most recent week. Even the mildness of the symptoms was cited by some as bad news as many may have had the illness but didn’t know it. Fatality rates are at 2%, maybe less, and those harboring the virus infect only an average of two to four others within a distance of one hundred feet or less. This has it looking more like the flu which so far this year has affected fifteen million Americans resulting in 8,200 deaths versus the two reported to date from the Covid 19 virus.
Those professing to practice the offering of investment rather than medical advice nonetheless are cautioning that the economic effects of this virus will materially impact global growth rates and corporate earnings thus justifying the recent market decline. Strangely, some who claim to be forward-thinking are left denying that China is going back to work and that automotive traffic levels in that country's major cities are rapidly approaching their pre-crisis levels. Apple's CEO Tim Cook has claimed to be unable to perceive any notable disruption in that companies supply chain.
I’m a financial advisor, not a psychotherapist. I do not really understand why there is such a great and seemingly growing appetite for doom among the populations of the developed world. We live in times of unparalleled peace and prosperity. Never in all of human history have so many lived so well. I do understand that the economic capacity of the world is driven by the demand for the goods and services of this world’s people and that economic demand is like a string gathered together in one’s hand. Its length doesn’t change so the less revealed in the short term the more is to be revealed later. One year from now this world will look very much like it would have had the Covid 19 virus never made its appearance. This is the very best information for investors to remember.
Mark H. Tekamp
March 4, 2020