It’s amazing that the markets have been so resilient up until late February with the rapid spread of the Coronavirus.  Maybe it’s because recent history with stocks and viruses is that markets overact, leading to significant buying opportunities along the way.  Over a 38-day trading period during the height of the SARS virus back in 2003, the S&P 500 index fell by 12.8%.  During the Zika virus, which occurred at the end of 2015 and into 2016, the market fell by 12.9%.  There are other examples, but they all passed, and the market recovered and hit new highs.  Just look at the 6 and 12 month percentage changes going back to 1980.    The 6-month change of the S&P 500 index following the start of the epidemic was positive in 11 of the 12 cases, with an average price return of 8.8% ‒ which is incredible.

This whole thing has been a human tragedy and we would never take human life and suffering lightly as we try to relate it to our client’s wealth and planning.  Instead of looking at it, last month, from a total confirmed case perspective, we think the number of total active cases provides a better look into what is happening.  This measure takes total confirmed cases and subtracts deaths and recoveries.  This gives the total amount of people who have the potential to spread the virus further.  When we looked at the data from health agencies around the world, it actually showed cases dropped 15% from the peak on February 17th to eight days later.

The mortality rate from SARS was 10% and the mortality rate from Covid-19 is 2%… in China.  What is the fatality rate in the United States?  We don’t know yet.  The typical flu fatality rate in the United States is .1 (1/10th of one percent).  This is important.  One death is too many.  But let’s put the number into perspective.  In the United States alone for the 2019-2020 season, there have been at least 15 million flu illnesses, 140,000 hospitalizations and 8,200 deaths.  Imagine if everyone with an internet connection followed the spread of this annual flu, case by case, hour by hour, and with the bright red 3-dimensional virus at the bottom of each news station.  It reminds us of similar hysteria of a cat-3 hurricane barreling down on the east coast.  We have to factor in media’s insatiable appetite for clicks, views, etc.

The US consumer is on solid footing and will continue to be one of the key drivers to US economic growth in the year to come.  We believe, just like with all the other viruses we have seen over the past decades that have dissipated, the Coronavirus will be no different.  We suspect that any drop in earnings or economic activity will be short lived, and more than made up for in the year to come.  Don’t panic, stay invested.  The S&P 500 index is up 1,460 % since the start of 1990 by the way.  As painful as the immediate drop of 10, 20, 30, or 40 percent every now and then may be.  Is it really going to matter in your overall wealth accumulation and generational wealth plans?  We can help!

 

Blake Parrish, CFP®
Senior VP, Portfolio Manager
Phone: (503) 619-7237
E-mail: blake@bpfinancialassoc.com

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”