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March 17, 2020 - Market Update March 2020

March 17, 2020

COVID-19 (more commonly known as the ‘Coronavirus’) has been a contributing factor to recent volatility in the financial markets.

Here’s what we know about the Coronavirus:

  • Common symptoms include runny nose, cough, shortness of breath, sore throat, and fever. Not all that different than a common cold or flu.
  • Most cases are mild, and the mortality rate is low (in the 2-3% range based on a number of reports), meaning most that contract the virus will survive it.
  • The Coronavirus originated in China and has spread to a number of other areas throughout the world.
  • Substantially more people die from seasonal flu symptoms than the Coronavirus. According to John Hopkins as of March 2nd, there were 3,085 deaths from Coronavirus compared to 291,000-646,000 worldwide per year stemming from the flu.
  • Pharmaceutical companies are aggressively pursuing a vaccine or treatment for the Coronavirus. In the meantime, impacted patients are being treated with medications and remedies used to combat typical flu symptoms.

Implications for financial markets:

  • The Federal Open Market Committee (FOMC or ‘Fed’) announced an emergency rate cut of 50 basis points on March 3rd, lowering the Fed Funds target range to 1-1.25% (from 1.5-1.75% prior). In its statement, the Fed affirmed the strength of the U.S. economy but cited risks due to Coronavirus which drove its decision to act before its next scheduled meeting (March 17th & 18th)
  • A number of companies have either lowered or withdrawn earnings guidance for the upcoming quarter or fiscal year. With fourth quarter 2019 earnings season largely behind us, we won’t have a good grasp on how impactful the Coronavirus is until first quarter 2020 earnings season kicks into high gear in mid-April. Overall, we see the Coronavirus as a potential risk to earnings and stock prices but it’s too early to gauge the severity of its impact. We should have a better idea of the impact in the coming weeks and months.
  • Long-term interest rates have dropped to historic lows. The yield on the 10 Year Treasury dropped below 1% on March 3rd, an all-time low.
  • Volatility remains elevated in both directions as we saw with broad market declines during the week of February 24th, upward reversal on Monday March 2nd, and weakness on March 3rd. We expect market volatility to continue and the bottoming process to play out over several months.

Here’s how we’re responding:

  • We have used short-term weakness as a buying opportunity as many of our holdings declined to more attractive entry points in late February.
  • Consistent with our investment philosophy, we take a long-term approach and try not to be deterred by what we consider as short-term risks like the Coronavirus.

We will continue to monitor all portfolios and will look for opportunities to adjust as needed. Please do not hesitate to reach out to us if you have any questions or concerns.

This commentary is provided for general informational purposes only and should not be construed as personalized financial or investment advice. Information has been obtained from sources deemed reliable but is not guaranteed. Securities and investing involve the risk of loss. No strategy can assure a gain or the avoidance of loss. Forward looking comments necessarily involve known and unknown risks and are subject to change. There can be no assurance that forward-looking statements will prove to be accurate, as future events could differ materially from those anticipated. We undertake no obligation to update forward-looking statements if circumstances or opinions should change.