Stocks are off by about 3% this morning (as of noon on 2/24/2020) on fears that cases of coronavirus are accelerating outside of China. Should you worry? For the “general American public“, the answer is no. Does that mean that only an idiot would be concerned by this? No. Identifying and dealing with threats is how humans have survived as a species. It’s normal to watch the news, worry, then talk to someone about it.
China’s position as not only a supplier of goods, but also as a newly dominant source of demand for goods is a twist, though. I will be watching Apple stock as a proxy for this story. A good amount of Apple stuff is dependent on the Chinese supply chain. The rising Chinese middle class loves the iPhone. Also noted is that the ‘Trade War’ between the US and China may have softened the blow of the coronavirus as businesses have looked to diversify their supply chains to avoid the chaos of knee-jerk tariffs and twitter tit-for-tat.
Market pullbacks like this are not uncommon. We had a 6% selloff in August of 2019 (tariffs) and a 6% drop at the end of January of this year (also coronavirus fears). The last real correction was in the 4th quarter of 2018 when the market was down nearly 20%. On average, there’s a correction of 14% each year so maybe we don’t even call this normal until we’re down another 10%?
The perceived importance of market drawdowns, however, is magnified because of how we collect and digest data. We are all relatively new to social media. Whether it’s Twitter, Facebook, or Instagram, we have the opinions of a crowd at our fingertips. Your feed may be telling you to panic over coronavirus, but other people’s feeds are full of spring training games, Saturday’s big fight, or Nevada caucus results. If your feed is talking about just one thing, it’s easy to feel like EVERYONE thinks the same thing and that thing is very important. Even if that thing is the open-casket funeral for the Browns mascot.
Social media (more or less) follows a 90-9-1 rule of thumb. 90% of users merely lurk, reading and liking posts without creating content of their own. 9% are somewhat active. 1% create the vast majority of content and interactions. So what you see when you consume social media is mostly from people who are VERY ONLINE. There are incentives for these folks to be first (this used to mean literally commenting “first” in comments sections) to share information. Bad news and sensational stories are more likely to be shared due to human nature. So what do you suppose gets shared more ‘Stuff Happens, World Doesn’t End’ or ‘5 Ways Your Toothpaste is Killing You’? If you said a video of an otter playing a phone like a saxophone… ok, you’re not wrong. But your next click after that is toothpaste.
This latest coronavirus seems to be as contagious as the common flu, but less deadly than previous epidemics like SARS, H1N1, or MERS. However, we didn’t have nearly as much transparency into them as we do with what’s coming out of China now. Just because we are getting day by day (and minute by minute via social media) updates, today’s problem seems different and novel. I suspect it’s like watching your house on Zillow. Back in the day, you only knew what your house was worth when you bought it, got it professionally appraised, or sold it. Now, you can look on Zillow and see your home’s value change every single day. The constant updates on coronavirus, especially on bad days, get people talking. Previously, we never would have heard about this stuff or we would have found out so far after the fact that it was irrelevant.
This is obviously a serious health concern and a danger especially to those susceptible to influenza to begin with. However, I don’t see coronavirus fears as a reason to change a financial plan. The sickness will run its course and we’ll be on to the next crisis very soon. Don’t forget, the person running against your favored candidate for President will literally end American democracy as we know it. Everyone on your social media feed says so. You’ve got less than a year to panic. In the meantime, read Warren Buffett’s letter to Berkshire Hathaway shareholders which conveniently just dropped.