COVID-19, MARKET REACTION AND YOU

What is happening?

In the months before the coronavirus outbreak began, the global economic outlook was becoming increasingly optimistic with a rise in industrial activity, global trade tensions had subsided, stock market indices were reaching all-time highs and commodity prices were rising steadily. Over the last few weeks the world is living with a heightened degree of uncertainty as a result of the spread of the COVID-19 Coronavirus.As many of you are aware, this virus originated in China and has since spread to Iran, Italy, South Korea and other countries. A handful of people have tested positive here in the US for the virus.

There are many questions people have regarding this virus outbreak.

What is happening to people infected with COVID 19 virus?
How is virus being spread?
How can we protect ourselves?
Are government leaders around the globe capable of adequately addressing the problem?
What if this virus spreads faster than we can control it?
Why don’t we have a supply of effective antidotes ready to offer those infected?

To find some answers, the website links noted at the end of this note are resources we have found to be reliable and frequently updated.

For many with unanswered questions, this leads to uncertainty and fear. We believe those investors jumping on the recent market roller coaster are reacting to these feelings of uncertainty and lack of clarity about what will happen next. When you combine the health fears with frothy stock valuations and the perpetual warnings of the coming US election, we can see how stock sellers are outnumbering buyers this week. Price corrections in markets are a normal part of the cycle.

What is economic impact?

Major disruptions in China’s manufacturing and tourism will impact earnings of corporations and businesses linked to China. China’s GDP is the second largest in the world (about ½ the GDP of the US). The goods and services produced in China is slightly more than what is produced in the Eurozone. There is no denying this virus has put a shock in markets and is disrupting global supply chains. Other concerns/comments:

How long will it take to recover from the quarantine of millions of people in industrial cities in China?
How will corporations adjust their decisions, outlook and strategies based on their perception of the impact on the economy due to this virus? We are reading about airlines suspending flights, schools closing, potential postponement of Summer Olympic games, study abroad programs sending students home and ,as many factories slow their production, we anticipate demand for commodities will fall.
You are not a short-term trader. You understand that a year from now people will still rely on airplanes to travel, factories will keep churning out goods to replace old ones, travelers will continue to explore new cities and fuel will be consumed to power the aircraft and machinery.
This coronavirus will deliver a throbbing short-term headache for our collective portfolio with the most important take away that it will be short-term.

What may happen in the future?

Companies will likely report reduced revenue.
Market selling will be triggered by program trading making for volatile DOWN days.
Market buying will be triggered by program trading making for volatile UP days.
Lower revenue figures can lead to lower earnings which in turn would be disappointing news for equity investors who generally like to anticipate rising (not declining) future earnings.
Major indices will be subdued as investors digest the updated corporate forecasts for the year as many businesses will report poor Q1 and possibly Q2 results
Possible layoffs if the economic downturn drags into 2021.
Bond yields will remain low. The 10-Year Treasury has moved from 1.92% as of 12/31/2019 to 1.33% today as global investors prioritize safety over yield.
With support of central banks around the world investor optimism may return in the latter half of 2020 as focus shifts away from the coronavirus.
Significant new coronavirus treatments are introduced, health organizations will have developed new methods for communication and delivery of services.
Resumption of a normal lifestyle all over the world.

How should you respond?

Your personal safety is our primary concern and we encourage all our clients to stay alert to health-related news about ways to keep your family safe. Maintain a healthy lifestyle including ample sleep, preventative care, regular check-ups and washing hands regularly. The links to the Johns Hopkins University https://releases.jhu.edu/category/academic-disciplines/public-health/and Centers for Disease Control and Prevention https://www.cdc.gov/media/pressmaterials.htmlwebsites offer helpful guidance and resources.

Embrace this market challenge as it helps us reflect on our goals, test our conviction and reinforce our discipline.
Review your current savings and cash balances in investment accounts. Plan to have enough cash and money market assets to cover your anticipated liquidity needs over the next 12-15 months.
Maintain your longer-term perspective and resist the temptation to let your emotions dictate a change in your investment strategy.
Diversification has proven to be a helpful strategy by spreading risk through non-correlated asset classes. We are tracking client portfolio returns and the impact of the near-term market pullback and we can report that while riskier holdings have declined in value over the last few weeks, these positions are still reflecting healthy gains over the last 12 month window and fixed income positions in your portfolio are providing the expected buffer to the equity moves. This is not a time to panic.
As long-term investors, rapid market declines offer opportunities to add to quality positions. Many businesses still retain their long-term advantages and favorable economic outlooks because they have built businesses for the long-term.

If you are feeling uncertain about your overall allocation, the impact of the economic news on your portfolio, worried that this recent market decline may derail your retirement game plan, feel now is the time to deploy some cash into this cheaper market or just want to share your thoughts we welcome the opportunity to speak with you. Don’t be shy in reaching out to us by phone 203-743-0131 or email michael@matsonfinancialadvisors.com marie@matsonfinancialadvisors.com,

audrey@matsonfinancialadvisors.com and ali@matsonfinancialadvisors.com

We are patient investors. For investors feeling overwhelmed by all the disturbing news, sticking to their plan may feel foolish. How can we stand firm when everything seems to have changed around us? Nervous investors want to come up with a new plan. Deciding to stay the course is a plan, even if it feels irresponsible; it is a plan that has proven to be successful over time.

We are here to help you navigate these challenging days.

Ali Cutonilli, CFP®

Audrey Himebaugh, CFP®

Marie Keefe

Michael Matson

Links and Sources:

NYTimes: https://www.nytimes.com/news-event/coronavirus

Centers for Disease Control and Prevention: https://www.cdc.gov/media/pressmaterials.html

Johns Hopkins University: https://releases.jhu.edu/category/academic-disciplines/public-health/

Matthews Asia Funds-Perspective on Asia: https://us.matthewsasia.com/perspectives-on-asia/sinology/article-1707/default.fs

Vanguard Funds: https://vanguardblog.com/2020/02/24/coronavirus-uncertainty-and-the-markets/

Center for Disease Control: https://www.cdc.gov/coronavirus/2019-ncov/index.html

Business Insider: https://www.businessinsider.com/china-virus-everything-we-know-deadly-2019-ncov-wuhan-spread-2020-1

John Hancock Blog: https://www.jhinvestments.com/viewpoints/market-outlook/investment-implications-of-the-coronavirus-correction

Michael Matson
Matson Financial Advisors, Inc
Financial Planning * Employee Benefits * Wealth Management
4 Mountain View Terrace Suite 104
Danbury, CT 06810
Phone: 203-743-0131 x211
Fax: 203-743-4086

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