“Fear Is The Media’s Agenda But It’s Not a Good Investment Strategy”
The investment markets run off a lot of components and influences like market indicators and trends that we’ve covered in past articles, but emotions, especially fear, are the great unknown. The recent Coronavirus outbreak has caused a lot of angst and fear in the investment markets (in our opinion), mainly due to the unknown effects this virus will have on global commerce and that there is no known cure or vaccine. Fear is a funny thing, it can make you or the markets overreact and do things maybe you/they wouldn’t normally do.
As your money managers, we have seen fear based scenarios play out many times in the many past decades. And although we can’t predict with 100% accuracy what will happen, we have a lot of data to draw upon, and is why Experience Matters to you and your family.
Let’s take a stroll down memory lane.
If you remember the SARS virus around 2003, it also originated out of China and killed approximately 9.6% of the roughly 8,000 infected and it was considered very deadly at that time with no cure. The effect SARS had on the markets, over an approximately 2-month period from January 2003 till the first part of March 2003, was substantial. The Dow Industrial Index (Dow) was down roughly 13% during this short period, but by the end of 2003, the Dow was up over 34%+ from the March 6, 2003 low to the end of 2003.
Remember the Swine Flu epidemic during the 2009 flu season? Reportedly, some 61 Million Americans contracted that virus (that’s a lot), of which 274,000 were hospitalized and over 12,400 died. It disappeared in time and by the end of 2009 the Dow was up by approximately 19% after recovering.
As your money managers, we have seen fear based scenarios play out many times in the many past decades. And although we can’t predict with 100% accuracy what will happen, we have a lot of data to draw upon, and is why Experience Matters to you and your family.
Let’s take a stroll down memory lane.
If you remember the SARS virus around 2003, it also originated out of China and killed approximately 9.6% of the roughly 8,000 infected and it was considered very deadly at that time with no cure. The effect SARS had on the markets, over an approximately 2-month period from January 2003 till the first part of March 2003, was substantial. The Dow Industrial Index (Dow) was down roughly 13% during this short period, but by the end of 2003, the Dow was up over 34%+ from the March 6, 2003 low to the end of 2003.
Remember the Swine Flu epidemic during the 2009 flu season? Reportedly, some 61 Million Americans contracted that virus (that’s a lot), of which 274,000 were hospitalized and over 12,400 died. It disappeared in time and by the end of 2009 the Dow was up by approximately 19% after recovering.
Another factor to consider, that in China, which has roughly a third of the world’ population, health conditions are not as good as in the U.S. This alone gives us an indication that the general population is more susceptible to flus and viruses and may be why a lot of these types of flus originate there. It appears that more Chinese come down with the flu and potentially have a higher death toll as compared to the U.S. Also, as the Coronavirus virus spreads, many countries and the World Health Organization (WHO) are taking precautionary steps to contain this contagious virus.
Consider that the regular flu has already taken the lives of approximately 9,000 people in the U.S. this flu season. To put that in perspective, we believe that the current flu, so far, is more deadly than the Coronavirus, but the media isn’t talking about this. The media sells fear and the markets react to fear, so you see what can happen.
Treatment for the annual flu viruses have improved greatly over the years, especially with the advent of artificial intelligence (AI), and medical labs have already started testing antiviral vaccines against the Coronavirus. Many medical scientists also believe the current flu vaccine will protect many Americans from the Coronavirus.
From a global commerce perspective, we estimate that the Chinese supply chain will only be disrupted for approximately four to eight weeks, as the Chinese government has already ordered all manufacturing to resume in six of the seven provinces. Although, we will probably see some impact on corporate earnings, which will be mostly be contained into the first quarter of 2020, we expect a full recovery after that and no recession for the rest of this year (2020).
The other interesting piece in all this is that we’ve had the longest bull market in U.S. history and we have not had a pull back of any substantial amount in some time. We believe the markets look for a catalyst for a correction in certain situations and the Coronavirus could have been that nudge to get what we believe is a correction. We very rarely see a recession when interest rates are low, unemployment is low, corporate earnings are good, inflation is low and the economy is working well...as is the current case. On top of all of this the Federal Reserve executed an emergency interest rate cut by a half a point (50 basis points on March 4, 2020) to purportedly ease possible economic disruptions caused by the Coronavirus, which the investment markets reacted negatively to possibly because this raises the risk of a recession.
Keep in mind, we also have less than 100 cases and 2 deaths(As of Friday, 2/28) in the U.S., which will go higher before it’s over. So, this could take a few months to get sorted out and it is possible to see a lot of volatility during the next few months (like on Monday March 2, 2020). The bottom line is simply not to let the media hype, which their goal is to get higher ratings(and thus, more advertising dollars), get to your emotions. We believe this will be short lived in the grand scheme of the investment markets and we will all be pleased by the potential turnaround in the markets.
There were no initial cures during all of the flu epidemics we’ve seen, just like the current Coronavirus epidemic. But, as we believe this will play out as every other flu virus outbreak, including others like Ebola, MERS, the Bird Flu, and many more, patient investors were rewarded. We believe this will be the same scenario...but we highly suggest you wash your hands a lot!
Keep in mind, we also have less than 100 cases and 2 deaths(As of Friday, 2/28) in the U.S., which will go higher before it’s over. So, this could take a few months to get sorted out and it is possible to see a lot of volatility during the next few months (like on Monday March 2, 2020). The bottom line is simply not to let the media hype, which their goal is to get higher ratings(and thus, more advertising dollars), get to your emotions. We believe this will be short lived in the grand scheme of the investment markets and we will all be pleased by the potential turnaround in the markets.
There were no initial cures during all of the flu epidemics we’ve seen, just like the current Coronavirus epidemic. But, as we believe this will play out as every other flu virus outbreak, including others like Ebola, MERS, the Bird Flu, and many more, patient investors were rewarded. We believe this will be the same scenario...but we highly suggest you wash your hands a lot!
As always, we welcome any questions, concerns or input that you may have. So, please contact Brian at (318) 448-3201 or email at brian.schmolke@lpl.com in this regard.
We also love what we do and want to help others like you to plan for the future, so we appreciate anyone you refer to Schmolke Investment Team. Thank you for your business and please know that you and your family are our highest priority.
Brian Schmolke
Bart Schmolke
Schmolke Investment Team
“Experience Matters”
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.