Joel’s Weekly Talking Points – 2/24/20
- Coronavirus: In the January 27th version of this missive I wrote that, “the major concern at this point (about the Coronavirus) is disruption of global supply chains”. Over the weekend, it seems that concerns have leap frogged past supply chain disruption to the possibility that we may be facing a legitimate global pandemic. For example, Italy had three confirmed cases on Thursday and had 220 as of Sunday night. Nearly the entirety of the northern half of the country is for all intents and purposes closed – Italy has shut down schools, universities, and museums in the Northern part of the country. In addition, they have banned public and private gatherings including soccer matches and cultural events.
- “Sustained Transmissibility”: Dr. Anthony Fauci, Director of the National Institute of Allergy and Infectious Diseases, went on CNN earlier today and stated that, “We are clearly at the brink of a pandemic”. He cited the sustained transmissibility of the coronavirus in multiple countries as an area of concern for the virus to continue to spread.
- Cause for concern or cause for alarm?: The CDC estimates that between 12,000-61,000 US citizens die annually from the flu. According to the Washington Post, as of this writing there are 2,592 deaths attributed to the coronavirus globally. The virus is still very “young” in terms of how long it’s been around, and yes, the mortality rates are far lower than the SARS outbreak in 2002, but this seems different. The global reaction is what is causing me concern for the economy.
- Global Reaction: Large portions of China are essentially under quarantine. In fact, box office revenue during the Lunar New Year was “virtually nonexistent” (source: New York Life). We’ve known about this for some time, but the news of the extraordinary reaction from Italy, and an explosion of new cases South Korea (confirmed cases doubling every day last week) came as surprise. If we start to see more closures, in other countries, there will be downward pressure on the global economy.
- IMPORTANT SOURCE OF SPENDING – Chinese travelers accounted for 20% of total tourism dollars spent globally in calendar year 2018 (source: United Nations World Tourism Organization).
Weekly index performance: The S&P 500 was down 1.22% last week, the Russell 1000 Growth index was down 1.50% and the Russell 1000 Value was also down 0.67%. Small caps followed suit with the Russell 2000 losing 0.52%. International markets were down with the EAFE losing 1.23%, and Emerging markets down 1.96%. Turning to fixed income, the broad market US Aggregate was up 0.57%, and the High Yield index was up 0.09% last week. The US 10 year is at 1.37% this morning.
Bottom line: We do not yet know if the coronavirus outbreak is the proverbial “black swan” yet or not – we cannot pretend to predict the future. There are still plenty of people, people trained specifically in immunology and virology that are trying to get in front of the spread of this disease. The longer this goes on, the more damage it will do to the global economy in my opinion. Fortunately for most clients we took a more defensive position to start the year, as I noted in my “Defend and Diversify” commentary earlier this quarter. As always, we will analyze the data as it comes in and act accordingly within your financial planning needs.