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Monthly Market Insights from Bill Schiffman – February 2020 (Update)

“M-m-m-m-m-m-my Corona!”

A little twist on the catchy 1979 song “My Sharona” by one-hit wonders The Knack. Given what the stock market is doing today, it’s a rather obvious choice for this month’s song title. Because many of us are rightfully concerned about the impact of the Coronavirus on our investments, I thought that I’d get the normal month-end missive out a week early.

Up to today, equities have behaved decently in the face of what could become a worldwide pandemic. Early last week showed a decline in new cases along with a relatively optimistic view of containment in China. Unfortunately, hundreds of victims have been found in South Korea and Italy over the weekend and massive quarantining now has been mandated in both countries.

The bottom line is that the Coronavirus is a very fluid scenario. Chinese supply chains have already been adversely affected. The travel and leisure industries are seeing massive cancellations and few new bookings. The price of crude oil is bottoming due to projected lower demand. With today’s steep selloff, the usual suspects of bonds and gold are doing well as safe-haven alternatives.

As we mentioned last month, the market seemed in need of a correction, and the Coronavirus provides a powerful catalyst. February saw a rise in frothiness, as Tesla literally doubled to over $900 in several trading days. Virgin Galactic through mid-last week was up a mere 239% since the beginning of the year. Fear of missing out makes for speculative plunging, and we’re seeing the back side of these trades as we speak.

Somewhat overlooked in all the Coronavirus discussion is another potential proverbial Black Swan – the rapid ascendancy of Bernie Sanders in Iowa, New Hampshire, and Nevada. While the overall Democratic race and debates have resembled a circular firing squad, Sanders has all but eliminated Elizabeth Warren from contention in the progressive lane of the party. All of the others, including the new face Mike Bloomberg, are vying for the support of the more moderate lane. Sanders just might be able to garner an insurmountable need after Super Tuesday next week, and the top of the ticket would feature an unabashed Socialist. As you can imagine, Wall Street would be quite unhappy with anyone who would attempt to radically change economic policy. 

There are many apt comparisons between Sanders in 2020 and President Trump in 2016. Both men are outsiders in the lens of traditional government. They have both appealed to the less centrist voters in their parties. Trump had the nomination won quite early in the caucus process in 2016, and Sanders appears to be heading that way now. Trump ended up winning in what still is considered a surprise, and who’s to say that demographics couldn’t provide a similarly shocking Sanders win in November? Wall Street has a right to be nervous.

When human traders become anxious, so do their bloodless black box counterparts. The “shoot now, ask questions later” mentality reigns supreme. The VIX, or Volatility Index, is skyrocketing. But should we as long-term investors follow suit?

Believe me, I understand both your angst and pain, but let’s put some things in perspective. Today’s carnage puts us only slightly underwater for 2020 equities performance. This is following an extraordinary 2019. If you were to get out of the market now, when would you have the confidence to get back in? The SARS epidemic of 2002 saw a peak to trough decline of 7% in the S & P 500. I wouldn’t be surprised if the Coronavirus/Sanders news flow doesn’t lead to a worse result. But this is temporary. The market rebounded after SARS was contained, and it hopefully will again when there’s more visibility.

There is no doubt that the Coronavirus will have a significant impact on many areas of the economy. Retail stores will see inventory shortages in electronics and soft goods. It might take a while for folks to get comfortable being on an airplane or a cruise ship. But, as the famous philosopher once said, “this too shall pass”. When it does, people should get comfortable investing again.

I keep coming back to the fact that the ten-year benchmark Treasury is now around 1.4%. This figure is lower than the dividend yield on the S & P 500, and that equities yield goes higher when stocks go down. If the economy slows down too noticeably, the Federal Reserve will have little choice other than to lower rates again. This would potentially make stocks even more attractive.

This morning on CNBC, Warren Buffett was his usual measured and brilliant self. He said that there was no reason to buy OR sell today based on the Coronavirus. He kept mentioning the fundamentals of the strong US economy and the fact that things would not be changing dramatically any time soon. He also mentioned how inexpensive borrowing money is underpinning stocks.

It’s a scary time, but we’ve been through these types of events before. Our team of Kelley, RC, Christie, and I are here to guide you through these difficult waters. Please feel free to call or e-mail with questions or comments. In the meantime, don’t forget to breathe and think in the longer term.


Bill Schiffman

Registered Representative

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.

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