Kane Financial Update – February 24th, 2020

3 Minute Read

Markets have experienced steep declines during the day, as the coronavirus has spread across Asia and into Italy.

I wanted to put together some information about the recent market volatility as it relates to the Coronavirus, along with some perspective on how markets have performed around other epidemics.

A well diversified portfolio is built for times of market volatility.  As your portfolio manager, we do not try and predict what the markets will do short-term, rather we take advantage of market swings through rebalancing, and thoughtful asset allocation strategies.

While the media will surely focus on the point swings, it is far more important to focus on the percentages.  As of this writing, the markets are off about 3% today.  For context, the 4th quarter of 2018 saw markets off approximately 15% – 25% depending on the index.  That fourth quarter turned out to be an excellent time to buy stocks.

While these swings can be unnerving, they can provide excellent opportunities for long-term investors.  Here is a brief breakdown of frequently asked questions:

What exactly is causing this market volatility?

It was announced over the weekend that cases of the Coronavirus jumped, and have spread to South Korea, and even Italy.  The markets have mostly shrugged off the news around this virus, but with the spread through Asia and now into Europe, price adjustments are inevitable.

What exactly are price adjustments?

A nice way of saying we could see weakness in the markets in the short-term until the spread of this virus is under control.  Markets will now have to take into account a likely decline in profits due to supply chain disruptions, travel and tourism industries will be affected, and global production could dip.

Are those profits lost forever?

Not necessarily, it comes down to a question of demand delayed vs. demand destroyed.  While you may cancel a vacation to Asia, there are still goods and services that consumers will buy, it’s just those purchases could be put off for a period of time.

If the markets are going to see weakness, should I change anything with my portfolio?

Your current portfolio should be aligned with your goals, time horizon, and risk tolerance.  If you are taking income, we have a portion of your portfolio invested in bonds and cash, allowing the stock portion of your portfolio to recover from either short-term or long-term losses.

Will this lead to a recession?

Only time will tell.  Earnings have remained strong and the US consumer resilient.  While several factors could lead to a recession, a long-term investing perspective has time and time again rewarded patient investors.

Please find below a link to some excellent information from MarketWatch on how other epidemics in history have affected the markets over short-term time periods.

MarketWatch – How the stock market has performed during past viral outbreaks, as coronavirus infects 31,000.

I hope you find this information helpful, and again, if you have any questions at all please do not hesitate to contact the office.  Have a great week!

Best,
Clint

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