Kane Financial Update – March 9th, 2020

5 Minute Read

As I was walking into a weekly economics class I teach on Fridays, there was a sign on the door that caught my eye “Stay calm and wash your hands.”  With all of the scary headlines out there, I was encouraged to see some common sense messaging to the public.

It has certainly been a stressful couple of weeks for investors, and the virus is first and foremost a human tragedy.  For the purposes of this writing, I am going to address it strictly from an economic and market perspective, discussing both the near term and the longer term.

Before I get into the details below, I just want to reiterate that I am confident that the market will recover from this selloff, it could take a few months or even a year, but markets will recover. 

Additionally, this is not 2008-09, banks are not overleveraged, there are not widespread bankruptcies, a housing crisis, a liquidity crisis, or a myriad of other issues that caused the global financial crisis.  We entered this downturn with a strong economy and healthy financial system.

In the short term, I would expect continued volatility and scary news headlines.  Longer term, the markets will recover, and this will be yet another blip in the long-term upward trend in stock market history.

First, let’s take a look at where we are after the recent market selloff, which is right about at the levels of August 2019 not including the selloff today, which puts us back a bit further.

What just happened these past two weeks?
The coronavirus obviously spread outside of the borders of China and made its way around the world and to the US.  China literally had to shut down its economy to help contain the spread.  The Dow Jones has been in existence for 6,200 weeks, with only 17 of those weeks seeing a 10% or more decline, which is what we experienced two weeks ago.  There is an old Wall Street adage, the market goes up an escalator and down the elevator, as you can see this from the above illustration.

That said, there is encouraging news out of China and South Korea as new cases of coronavirus have plunged, and businesses are reopening.  Additionally, 11 of the 16 makeshift hospitals opened in Wuhan, where the virus originated, have been closed.

As of this writing there have been 114,276 total cases of coronavirus worldwide (80,739 in China).  Of this, 66,843 are closed cases with a 94% recovery rate.  Of the 47,433 active cases, 87% are mild, while 13% are serious, affecting those mostly with underlying conditions and/or a compromised immune system.

Near Term – What to expect the next few weeks:
More volatility and uncertainty as we learn more about the spread of the virus domestically, and try to project its economic effect.  There could be aggressive quarantine policies put into place by state and local governments such as cancelling large gatherings, closing schools, and encouraging people to telework where possible.

Short Term – What to expect in the coming months:
Hopefully the development of a vaccine and a rebound in market stability.  Any aggressive quarantine policies would be temporary, and we could see a rebound in economic activity, earnings growth and stock prices.

Longer Term – What are some positives that can come out of all of this?

• Mortgage rates could fall to all time lows, making it advantageous for homebuyers and those looking to refinance.
• Diversifying supply chains, relying less on one country such as China, and possibly bringing more of that supply chain back to the US.
• Better hygiene habits year round, helping to curb the spread of flu and the cold in the future.
• More businesses exploring teleworking arrangements for employees so there is less of a disruption for business.  Kane Financial for example can be fully operational from anywhere with an internet connection, and more businesses may build that type of infrastructure in the future.
• Better preparedness for future virus outbreaks.

What I have learned over 14 years in portfolio management is that American people and businesses are both resilient and adaptable.  When things go awry, we don’t bury our heads in the sand or throw up our arms.  We push forward, we adapt, and we will become better and more prepared.

I hope this was helpful, if you have any questions or concerns at all, please do not hesitate to contact the office.

Best,
Clint