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Take a Deep Breath  Thumbnail

Take a Deep Breath

The Coronavirus is Having a Negative Impact on the Global Economy and the Stock Market.

As of today, there are 74,407 known cases of the virus in 32 countries and 2,622 people have died.

It has paralyzed Chinese economic activity and because China is so connected to the world supply chain, it will reduce annualized global output by 2% for the next few quarters.  Some analysts are predicting that the Chinese economy will contract by 3.9%.

Several U.S. companies, including Apple, Disney, McDonald’s, Starbucks and Tesla, have temporarily shuttered, or reduced operations in the China – thereby negatively impacting their own financial performance. Apple has already lowered guidance for its current quarter.

Most major global airlines have grounded flights to and from China through late April, choking off a significant source of consumer spending as Chinese tourists account for as much as 0.35 percent of global gross domestic product.

Economists at J.P. Morgan have cut their U.S. first-quarter growth estimate by 0.25 percentage point to 1% as a result of weaker exports to China.  Goldman Sachs is warning that a near term correction is which the market slides at least 10% from a recent peak “is looking much more probable”.  

It is estimated that the economic disruption related to the coronavirus will cost the world economy over $280 billion in the first quarter of the year alone.  If there is no forthcoming vaccine or cure for those already infected, the human and financial impact will extend into future quarters. In the last two days, the Dow Jones has lost 1,900 points and thereby wiping out all of the gains of 2020.  The fear is that this downturn might continue for months.

Under these circumstances, what’s a person to do?  Sell, Hold or Buy?

Given that you have a balanced portfolio of equities, fixed income and cash and are a long-term investor instead of a day trader – we would not recommend selling anything at this time.   Since 1980 there have been 12 epidemics that have caused short-term drops in the financial markets.  Over the course of the next 6 and 12 months, these positions recovered fully.  (See chart below.)  So be patient.

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Source: Dow Jones Market Data

If you want more than our word on taking a deep breath, read this from the New York Times.

If you are tempted to buy on this market correction, we would suggest that it may be a bit early but there will inevitably be a buying opportunity at some point.  The best buying point will likely the point at which there is the least optimism.  Stay tuned.