Implications of the Coronavirus
The ongoing outbreak of the coronavirus, or COVID-19, has lead to roller coaster highs and lows in the markets in recent weeks. While more than 90% of the cases and fatalities are linked to mainland China, cases have recently been reported in other countries including here in the United States, Italy, South Korea and Japan which has shaken initial optimism from investors that the virus would remain more contained. Health officials commented that the virus is likely to become a global pandemic and asked the public to prepare for an eventual outbreak domestically.
The Girard Investment Committee has been concerned the last several weeks that complacency was building within the market as several new stock market record highs were reached in February. With more than 60 million Chinese quarantined, comparisons have been made to the SARS outbreak in 2003. However, one major, and concerning, difference is that during the last 17 years, China’s contribution to global GDP has grown by five times and is now the second largest economy in the world, behind only the United States.
The impact of COVID-19 will be felt in the coming months both from weakened demand, but also potentially leaving an impression on the global supply chain. Global consumers will likely reduce spending. For example, they may avoid vacations over fears a trip could increase their risk of contracting the disease. The global supply chain will also be impacted if global producers are unable to source inputs from China or other countries which could disrupt production if substitutes are not readily available.
The most recent notable supply chain disruption took place in 2011 when an earthquake hit Japan and led to a slowing of industrial production of transport equipment followed by a decline in production of Japanese cars in North America. According to the Organization for Economic Cooperation and Development, China is the single largest international provider of ‘intermediate’ inputs, followed by Canada and Mexico. Early February manufacturing surveys have suggested supplier delivery times have increased in Asia and Europe, however, many sectors have enough inventory to continue production as normal for the remainder of the quarter.
If governments and public health officials are able to successfully manage the containment of COVID-19, the recovery could be swift and follow a similar pattern to other epidemics the World Health Organization has tracked in the past rather than sluggish and span multiple quarters. Containment is key. If the coronavirus is slowed, the effect on the global economy, and markets, could be relatively short-lived.
For now, there are still many unknowns and the extent of the economic impact will remain uncertain as the globe grapples with the trajectory and spread of the virus, and potential vaccine. When investing for the long-term, it is important to understand that market drops are inevitable, normal, and usually short-lived. What matters most is how you respond – or don’t respond – as sometimes the best action to take is no action at all. Panic is not an investment strategy.
Working with a financial advisor can help you navigate these market variances and create an investment strategy that matches your time horizon and risk tolerance. To have a conversation about your financial goals and how we can help, please reach out to a Girard advisor.
This article is for general informational purposes only and is not intended to provide legal, tax, accounting or financial advice. The information in this article, and any opinions expressed therein, do not constitute a recommendation or an offer to buy or sell any security or financial instrument. Viewers should consult with their financial and/or legal professionals before making any financial decisions.
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