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March 3 2020 Market Update

By on Mar 03 in Economics, Finance, Financial advisors, Market Update, Worth sharing

Coronavirus: Impact and Implications

Markets fell sharply in the last week of February as Coronavirus (officially, COVID-19) concerns spread, marking the worst single week for the S&P 500 since 2008.[1] On March 3, 2020, the Federal Reserve cut intrest rates by one-half point as an emergency measure, marking the first inter-meeting rate cut since 2008.[2]

In comments to the press, Fed Chairman Jerome Powell said, “My colleagues and I took this action to help the US economy keep strong in the face of new risks to the economic outlook.”

Fears about the virus’ spread in the US (as of March 2, 2020, six people have died in Washington State[3]) have also reached consumers. Anyone shopping over the leap year weekend may have noticed diminished inventory for non-perishables, and the Surgeon General has urged consumers to stop buying protective face masks for fear that medical workers will face a shortage.[4]

The question is: to what degree is this panic warranted? Will COVID-19 impact markets, the economy, and our health and safety as a nation?

Global business impact

As of March 1, 2020, there were 89,000 confirmed cases of COVID-19 around the globe, with initial cases being reported in the US, Belgium, Germany, and Saudi Arabia. Antony Fauci, a highly regarded infectious-disease expert at the National Institutes of Health, described the spread of COVID-19 as reaching “outbreak proportions and likely pandemic proportions.”[5]

The Director-General of the World Trade Organization said that the impact of the disease on the global economy would “likely be substantial.”[6] China’s factory index fell to its lowest level since the index was enacted in 2004, with the impact spreading across Asia throughout February. The manufacturing sector has since begun to come back online, though economists expect it to be some time before activity returns to previous levels.[7]

It may take time for the full impact of the virus’ spread and to be felt by global businesses. Two key concerns are with a drop in global demand for products and services (say, for air travel) and on industries that rely on localized production, like electronics. With manufacturing in the US hovering just within expansionary territory, there could be an impact as the effects of the outbreak spread.[8]

 

Economic impact

Overall, there is likely to be an impact on the global economy, though gauging what it might be is a difficult exercise. Citigroup has revised its 2020 Global GDP forecast to 2.5 percent growth from 2.7 percent, though analysts caution that the ingredients of an actual bear market are not in place, at least in their view.[9]

It’s useful to keep in mind that US businesses at least have been adapting to a potential shift away from China in the global supply chain for the better part of two years at this point – a result of uncertainty in light of the trade war.[10] In this case, there could be some degree of protection afforded by any contingency plans made under those circumstances.

Also, we think it’s important to keep in mind that global policymakers have been very vocal about their willingness to step in and support economic growth in light of the outbreak. Many expect the Federal Reserve to cut rates over the coming months – while this might not assist in the case of production delays or manufacturing stoppages, it can provide liquidity and credit availability to businesses affected by the virus.[11]

The bottom line for investors 

It’s very easy to get wrapped up in the news and allow fear to drive decision-making. However, we strongly caution against reacting to the market. The “animal spirits” that take hold of markets from time to time are unpredictable to some degree, which is why your investment policy accounts for them ahead of time.

In fact, for some investors, times of panic can afford an opportunity to rebalance strategically in accordance with that investment policy. But right now, the markets have gone into March remaining incredibly volatile, which is why our key recommendation is calm and patience.

Please get in touch if you’d like to discuss any aspect of the outbreak or its potential impact on your portfolio, and thank you as always for your continued support.

JSF Financial

 


Securities are offered through Mid Atlantic Capital Corporation (“MACC”) a registered broker dealer, Member FINRA/SIPC.

Investment advice is offered through JSF Financial, LLC, which is not a subsidiary or control affiliate of MACC.

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The information expressed herein are those of JSF Financial, LLC, it does not necessarily reflect the views of Mid Atlantic Capital Corporation (MACC). Neither JSF Financial LLC nor MACC gives tax or legal advice.  All opinions are subject to change without notice.  Neither the information provided, nor any opinion expressed constitutes a solicitation or recommendation for the purchase or sale of any security.  Investing involves risk, including possible loss of principal.  Indexes are unmanaged and cannot be invested in directly.

Historical data shown represents past performance and does not guarantee comparable future results.  The information and statistical data contained herein were obtained from sources believed to be reliable but in no way are guaranteed by JSF Financial, LLC or MACC as to accuracy or completeness. The information provided is not intended to be a complete analysis of every material fact respecting any strategy.  The examples presented do not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy. Diversification does not ensure a profit or guarantee against loss. Carefully consider the investment objectives, risks, charges and expenses of the trades referenced in this material before investing.

Asset Allocation and Diversification do not guarantee a profit or protect against a loss.

The Bloomberg Barclays U.S. Aggregate Bond Index measures the investment-grade U.S. dollar-denominated, fixed-rate taxable bond market and includes Treasury securities, government-related and corporate securities, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities.

The S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market.

The MSCI World Index is a broad global equity index that represents large and mid-cap equity performance across 23 developed markets countries and covers approximately 85% of the free float-adjusted market capitalization in each country.

The MSCI Europe Index captures large and mid cap representation across 15 Developed Markets countries in Europe and covers approximately 85% of the free float-adjusted market capitalization across the European Developed Markets equity universe.

The MSCI Emerging Markets Index captures large and mid-cap representation across 26 emerging markets countries and covers approximately 85% of the free float-adjusted market capitalization in each country.

Sources:

[1] https://www.ft.com/content/db7026c4-eebf-417d-913d-c45aa050cfe1 and https://www.bloomberg.com/news/articles/2020-03-01/washington-cases-may-be-linked-italy-cases-surge-virus-update?srnd=premium

[2] https://www.bloomberg.com/news/articles/2020-03-03/fed-cuts-rates-half-point-in-emergency-move-amid-spreading-virus?srnd=premium

[3] https://www.bloomberg.com/news/articles/2020-03-02/four-more-patients-die-in-washington-state-prepares-for-spread?srnd=premium

[4] https://www.nytimes.com/2020/02/29/health/coronavirus-n95-face-masks.html

[5] https://www.bloomberg.com/news/articles/2020-03-01/washington-cases-may-be-linked-italy-cases-surge-virus-update?srnd=premium

[6] https://www.bloomberg.com/news/articles/2020-03-01/washington-cases-may-be-linked-italy-cases-surge-virus-update?srnd=premium

[7] https://www.bloomberg.com/news/articles/2020-03-02/asian-factories-slammed-as-virus-sends-china-s-pmi-to-record-low

[8] https://www.bloomberg.com/opinion/articles/2020-03-02/coronavirus-worst-is-yet-to-come-for-u-s-factories?srnd=premium

[9] https://www.ft.com/content/db7026c4-eebf-417d-913d-c45aa050cfe1

[10] https://www.ft.com/content/db7026c4-eebf-417d-913d-c45aa050cfe1

[11] https://www.bloomberg.com/news/articles/2020-03-01/yuan-drops-with-aussie-on-virus-fear-economy-woes-markets-wrap?srnd=premium

Performance table Sources:
BBAB: https://performance.morningstar.com/Performance/index-c/performance-return.action?t=XIUSA000MC

S&P 500: http://performance.morningstar.com/Performance/index-c/performance-return.action?t=0P00001G7J&region=usa&culture=en-US

MSCI: https://www.msci.com/end-of-day-data-search

 

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