The recent sharp decline in the U.S. stock market, which saw the S&P 500 slide as much as 15% in just seven sessions, resulted from fears that the impact of the COVID-19 virus (popularly known as coronavirus) could be deeper and longer lasting than previously thought. This view coincided with the escalation of coronavirus cases in countries outside of China, and generated concerns that future containment efforts could dramatically impair the worldwide economy. If implemented, increased travel restrictions, forced quarantines and bans on mass public gatherings worldwide could certainly hurt future economic growth. The question is, how much and for how long?


Our best estimate at this point is that even the most severe U.S. fallout from the pandemic will not last beyond early summer. This isn’t to say that economic disruptions over the next 3 or 4 months couldn’t be severe – particularly if the U.S. suffers a larger outbreak that triggers a “nesting” response akin to that seen after 9/11. Under these circumstances, U.S. GDP growth could go negative during the second quarter. Importantly though, U.S. authorities are preparing for the worst. The ongoing ramp up of testing and diagnostic capabilities and treatment facilities at federal, state and local levels indicate as much. Also, a COVID-19 vaccine could be available for mass distribution before next winter’s flu season.


There are already signs out of China (where the virus originated) that infection rates have peaked, and people are beginning to return to work. Given that the outbreak started just after Thanksgiving there, this would indicate the “life cycle” of the crisis is about 4 months or so. Applying this timeline to the U.S. implies a June expiration (so to speak), and it could be sooner if the U.S. does a better job of containing the virus than China did. For some historical perspective, during the 2003 SARS outbreak, the U.S. stock market was down 10% and recovered in a month and a half. Ebola shook the markets in 2014, but stock prices recovered in three weeks.


Bottom line:  while certain aspects of the coronavirus may seem scarier than other pathogens (long incubation period, carriers can be asymptomatic, etc.), it’s likely to be a thing of the past by July 4th. Economically, coronavirus may nick 2020 U.S. GDP growth by a percentage point. It may also create a temporary drag on corporate earnings growth – depending on how consumers and businesses respond. Markets certainly don’t like it, particularly after a 12% increase in the S&P 500 between Halloween and Ground Hog Day.  As investors, though, we understand that changing our basic investment strategy because of a short-term disruption is a bad idea. We continue to seek out good businesses at reasonable prices, and are looking to deploy cash during the current selloff.  As always, if you have any questions about your portfolio or anything regarding your money, please don’t hesitate to give your consultant a call.

Nathan Boxx, Bradley Newman, Jason Seltzer

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