Here’s how I see it. The recovery since 4Q2018 was so smooth that the markets have been looking for a reason to sell off for a while. Acceleration dropped after 4Q2018 fell off of the 1 year numbers. The markets hiccuped after news of the coronavirus got really serious at the end of January. I think the real catalyst for the selloff, though, was Bernie winning Nevada. I’ve lived through at least two Presidents who were going to destroy democracy and wipe out the stock market. Everything has turned out fine so far. Even if Bernie gets elected, America will live. So I think this is all overblown to some degree. I was about to say to a ‘great’ degree, but this market pullback isn’t even that deep. The average year sees a drawdown of 14%. We had a 20% drop a little over a year ago. The coronavirus is a temporary issue which will act like 2018 did in making next year’s numbers look better than they are.
What Happens Now?
I think Biden wins South Carolina handily, ending the worry about Bernie steamrolling the field. If any other candidates are close after the primaries, the Democrats will make sure a brokered convention returns the ‘right’ candidate. Biden winning South Carolina will put a lot of worry to rest. Whoever wins the Presidential election in 2020 is irrelevant as far as investing over the long term goes. Buffett likes to invest in companies that are so good an idiot could run them (because eventually one will). America is the same way. We tend to promote people beyond their level of competence and I’m not just saying that as a Browns fan.
In the Meantime
Now is a great time to kitchen-sink problems. That is, blame coronavirus for anything bad that has happened. Sales down? Coronavirus. One-time charge? Coronavirus. Kids eating your detergent pods? Coronavirus. This should also provide a smokescreen for anything from replacing your CEO (so he can “spend more time with family”) to closing/launching a new business line. Didn’t do well? Coronavirus. In 12 months everybody gets to look real smart comparing their numbers to this year’s misses. It’s like tanking for a higher draft pick.
As for the markets, I expect more down days if/when new cases are reported in places like Germany, England, and major US cities. This will provide a new set of officials for the media to interrogate and feign surprise that the virus continues to spread. We’ll also possibly see aftershocks if testing kits don’t meet demand as the initial reaction to new infections is followed by spikes in reported cases after testing kits arrive. Public perception will be that cases flare up violently when reality is much more gradual.
This isn’t to say that everyone should be buying stocks hand-over-fist – you have to follow your financial plan. It just seems to me that the alarm around this latest crisis doesn’t match the impact.
Don’t take my word for it, look at the data:
- Johns Hopkins Center for Systems Science and Engineering put together a great dashboard that tracks various coronavirus statistics.
- The CDC has an excellent resource center presented in plain English.
- The WHO’s situation reports provide a more detailed look at a more global level.
China is getting back to normal in phases. Starbucks has re-opened 85% of their stores in China. About 1,500 more people are considered recovered from coronavirus each day than reported as new cases. Also consider that half of American adults don’t bother to get a flu shot each year. So why is the media so riled up?
Maybe a lack of news is throwing additional fuel on the fire. At the end of January, the biggest worry about coronavirus was whether the President’s response team was diverse enough. Top news stories then evolved to wonder if he could get a cheeseburger in India. Then something real happened and the dropping stock market sucked all the oxygen out of the room. If I’m right, things will calm down after Super Tuesday. I look forward to the big news stories being Astros getting beaned by pitches and hopefully some Albert Belle-esque breakups of Astros double plays.