Can the Market Shake the Flu?
This week, Nathan and I are attending one of our favorite conferences Inside ETFs—the conference is filled with all kinds of exciting sessions such as “The Non-transparent ETF Revolution and the Inevitable Adoption” and “Beyond the FAANGs: Understanding Technology Subsectors”—it’s pretty fun for investment nerds. 😊
Plus, it’s in sunny Florida, and it is nice to be warm for a few days…
It has been an interesting few days, and we’ve learned lots that we’d like to bring home and use in our portfolios and share with our clients. We’ll share over the next few blog posts, but yesterday, Coronavirus spooked the markets and each conference session spent a little time discussing the potential impact of this virus on growth, productivity, geopolitical relations, and ultimately the stock market.
Admittedly, I’ve paid very little attention to the news, and so I was a little ignorant of how serious the virus outbreak can be. It has sickened thousands, killed over 100 people, and has now been identified in 17 countries. Those who work in the healthcare field, like my sister, are very aware and are taking serious precautions…even down to wearing a masks in airports and in public…
Yesterday, the stock market dropped precipitously on fears that the virus would impact the world economy. However, research from Charles Schwab shows that the global stock market tends to be immune to pandemics:
Additionally, the stock market drama tends to be relativevly short lived. JP Morgan strategist Mixo Das writes: “Past experience of market performance around such events suggests that markets tend to bottom with the peak in new cases and news flow.”
The impact of the virus does have short term implications for some consumer discretionary stocks. Disney has shut down Shanghai Disney Resort and Disneyland Hong Kong indefinitely:
Walmart has closed over 400 locations in China, along with Starbucks and McDonalds, and Carnival and Royal Carribean have cancelled cruises to the region.
After the outbreak is contained, these companies should be able to recover from the earnings decline, but it may take them longer than the market as a whole. During the SARS outbreak, airline stocks took almost 3 months longer than the general market to recover.
For now, volatility risks related to the spread of Coronovirus remain high as the market digests the impact to earnings—and more personally, villigence to prevent the spread here in the US is warranted. Hand sanitizer has been a huge thing here at a conference with 2,200 people from around the world!
Be safe and see you all back in Virginia tomorrow…