Message from Jon
Monday and what may also be more days or weeks to follow we have seen rather unusual reactions to the coronavirus spreading throughout the markets. To be honest, it's not surprising in my mind considering that whatever information originating out of China in the past has been very "controlled," in my opinion.
Consider the following for a second...
- We have extremely large populations working and residing in close proximity to one-another.
- We have an outbreak of a flu virus in Wuhan China, which has a population of 11MM people-nearly 30% more than the largest city in the US, New York, which has 8.6MM.1
- China's central government is trying to keep their economy from slowing down as a result of the trade war with the US.
- We have a situation where more negative news on a large scale could add additional pressures to their economy.
- We have a sudden outbreak of a mutated strain of a flu virus in Wuhan (a city no one I know of has heard of till now).2
- Consider how contagious the normal flu is locally every year and what lengths we go to in order to shield ourselves from it.
In a meeting a couple weeks ago, I was with a client who I consider an expert in diseases (don't ask me what kinds, I am just a financial advisor, not an MD) and asked her about her thoughts on the whole coronavirus ordeal. She mentioned that it was simply a flu virus that had mutated, and those at risk of dying are those with an already existing immune deficiency condition. The media has a very unique way of overstating the obvious and sensationalizing the trivial and minor into something quite significant. I am in no way trying to state that this virus is anything more or less than a flu virus, which in certain circumstances can spread like a brush fire and under certain conditions can pose a significant threat to weak and poorly immune persons.
I do not believe that we are done hearing about the far spreading concerns of the virus by any measure at this point. Given that manufacturing of a great many things originates from China these days, we are also likely to see supply chains and demand become out of balance until the work can either be redirected or the workers can return to their duties.
Data & Indications:
At present, we are seeing no change to our underlying indications and measures of the market conditions. Last week one of our indicators was measuring nearly a 50% overbought reading on the market, giving us reason to believe a correction was imminent so this weeks decline was not a surprise to us.
When I put my money manager hat back on, this kind of sell off can and will offer some very enticing buying opportunities which we plan to take advantage of when they present themselves. Even after the "Huge" decline Monday, we are still showing an overbought status, which goes to show you just how unsustainably extended the conditions of the market had become as of late. The market volatility for sure is not over and you should expect more to come, in our opinion, as I have been saying for quite some time.
We will continue to operate as usual, watching our indicators, measuring risk, positioning portfolios that are aligned to current market conditions and communicating with clients accordingly.
Till we speak again, stay healthy!
Virus Anxieties Affect Stocks
WEEKLY UPDATE - FEBRUARY 24, 2020
The Week on Wall Street
Traders paid close attention to coronavirus developments and earnings last week, while wondering how the former might eventually impact the latter. Concern over updated infection numbers moderated risk appetite.A pair of key stock benchmarks posted similar weekly losses. In New York, the S&P 500 declined 1.25%; the MSCI EAFE index (of developed stock markets away from North America) lost 1.24%. The Dow Jones Industrial Average retreated 1.38% for the four-day trading week; the Nasdaq Composite, 1.59%.
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