Corona Concerns & Market Complications
Updated: Apr 29, 2020
Well, the Corona virus has certainly taken its toll on the markets this week. With over 80,000 confirmed cases of the virus, China – the world’s manufacturer, has basically decided to shut down until the disease is under control. This has halted production and brought the global supply chain to a near standstill. Think of all the manufacturing that takes place in China. From electronics to auto parts and from food supplies to heavy equipment nearly every aspect of our lives depends in some way on the manufacturing efforts of the Chinese. This is a scary thought to some extent and worthy of another conversation about the globalism we find ourselves in these days.
The stock markets have definitely taken a beating, and that is to be expected given that with a halt to manufacturing and eventually a limiting of supplies, which will force prices upward as demand potentially remains somewhat constant, there will be a slowdown in economic activity, worldwide. This is the basics to what the stock market is reacting. The stock market is a forward-looking machine, for lack of a better comparison. It reacts today based upon the predictions by people of the economy in the next 6 to 24, or so, months. This means that the market makers are predicting that the Corona virus will have a slowdown effect on the economy.
The question is for the investor: how long and to what extent will be the slowdown and what should I do about that?
It all comes down to your ability to predict the future. If you believe the Corona virus will be no more harmful, in the end, as the seasonal flu, then this may be a great buying opportunity for stocks because things are on sale and the prices will be going back up once activity returns in the spring or summer when the virus begins to die off. However, if you are a bit more pessimistic and you believe this is the plague of the end times and it is only a matter of time before we all succumb to it and all of humanity devolves into a Walking Dead scenario of every man for himself, then you might want to start planning for something other than the stock market to rebound.
That last scenario is highly unlikely, and I certainly don’t advocate for anyone to cash in all their chips and start buying land in the desert to build a fortified bunker. What I do believe, is that this is an over-blown issue just like many we have experienced in the past. I believe that we will eventually see a reduction in new cases, and economic activity will begin again in China and spread again throughout the world. With that, will come the eventual return to the stock market and the rise again of prices. The question then becomes, did you have the fortitude to do what Warren Buffett advises when he says, in short, to buy when others get fearful. Many others are certainly fearful, are you ready to buy?
One final thought on all of this. While stocks are dropping because of economic uncertainty, the Federal Reserve is considering lowering interest rates to help prop up economic activity. With that comes additional buying of bonds because the interest rates today are expected to be higher than tomorrow and thus, once interest rates drop the bonds bought today will be worth more. So, the silver lining is that if you have a well-diversified portfolio, you may not be experiencing the same level of fear as those who have concentrated portfolios.
We’d love to start a conversation with you about diversifying your portfolio so you can reach your financial goals, so if you are ready then give us a call or send us an email and we can start helping you with your financial plan.