March Economic Update
After a timid start to the month, February ended with a sudden volatility spike not seen since the last market correction back in December of 2018. Concerns over how the novel coronavirus (COVID-19) will impact business conditions and economic growth caused equities to quickly pull back from their recent all-time highs, with the S&P 500 slipping 8.41% by month’s end. (1)
Last month, we revisited some other recent virus outbreaks and how the stock market reacted, and eventually recovered, from those fears. The SARS, Ebola, and Zika virus epidemics did cause the market to pull back between 5.34% and 14.59% before eventually regaining those losses. At this time, it appears that the death rate for COVID-19 is far lower than those previous outbreaks, but could this virus cause the markets to react differently? (2)
The largest economic concerns (for now) over this virus stem from its birthplace - China. Many of the largest U.S. businesses rely on China for their manufacturing and supply chain, in addition to China’s consumer confidence and consumption to buy their products and services. By the middle of last month, manufacturing data began to reveal the scale of the impact on the Chinese economy. Companies in the U.S. began lowering revenue and earnings forecasts, which culminated in a wave of stock market selling last week. The full scale of the economic impact to China is still unclear at this point. (3)
Here in the U.S., we have only experienced only a handful of COVID-19 cases. During these times, it is important to be prepared, but not anxious. Currently, the virus appears to have a larger impact on the elderly and those with weakened immune systems. Healthy adults have more-or-less experienced mild to severe flu-like symptoms. Regardless of your age or health, it is recommended that you be prepared in the event the virus does begin to spread in the U.S.
Thoughts Regarding the Markets
No one can predict how the stock market will react over these coming months. The number of COVID-19 occurrences could increase dramatically in the U.S., or a vaccine could be developed sooner than expected causing a large rebound in economic production. History has shown that market pullbacks are typical in these situations, but it has also demonstrated large rebounds once fears subsided.