If you’ve been a client of ours for a while – or just a casual reader of our commentaries – you’ll recall we don’t normally send out these missives more than quarterly. We firmly believe that our mission is to create a sense of normalcy for our readers in both calm and stormy waters. After all, investing is the long game. Market behavior in short time frames is neither predictable nor important. But we’re giving COVID-19 a pass on our policy. So, here’s another update:
As we predicted last week, the case numbers in the US are ballooning since testing has substantially ramped up and is more widely available. The US now has more cases than any other country, as the news trumpets hourly. We remind you that all those folks testing positive will either be quarantined or be in self-isolation – which they were not a week ago when they likely contracted the virus. So, we are making progress to blunt the curve. If you believe in data (which we do), the efforts of the federal and state governments are working to reduce the spread. Below you’ll see a couple of graphs that represent the normal traffic patterns versus the current traffic patterns from areas like Beijing, Shenzhen, and New York. The blue lines represent normal traffic congestion patterns, and the red lines represent the last 7 days.1
Up first is Beijing. Traffic congestion is almost back to normal. You’ll note where the lockdown occurred.
Next up is Shenzhen, the heart of the world’s high-tech supply chain:
Last, here is New York:
Our take is that if people continue to adhere to the rules, this will work to reduce the severity of the spread and lessen the overall impact. That means an earlier peak, and an earlier decline in new cases, and an earlier return to normal life. If we do this right, it will all seem like overkill in a few months. We’ll take that complaint any day.
The damage done to the economy and the length of time it will take to recover are directly related to the length and severity of the spread. If the virus peaks in the next few weeks in the most densely populated areas, this could well be a Q2 event in terms of economic damage. If it drags on into the summer because some people can’t seem to behave and follow the rules, it may well last the rest of the year in terms of economic hardship and recovery. So stay home, for Pete’s sake.
As for markets, they continue to follow the 2008 Playbook we’ve referred to in previous commentaries. Last week’s historic mini-bull market helped take some of the pressure off, but we are not out of the woods by any stretch. The case counts will accelerate over the next two weeks, and we think that will unsettle investors. With all due respect to those who test positive, these larger numbers are actually good news from two perspectives: One, it isolates the unwitting spreaders of the virus, and two, researchers can more accurately forecast the expected peak in various locales, etc. In addition, Q1 earnings season starts this week, so we will begin to see how corporate earnings were impacted in the first quarter. These events are likely to keep markets bouncing around (both up and down) for the foreseeable future. Heed these important thoughts:
- We are at the moment of maximum uncertainty. The government has put the economy into an induced coma to protect it as much as possible. It is applying massive monetary and fiscal stimulus to blunt the effects of what will hopefully be a fleeting economic event. The short-term outcomes are not just unknown but are unknowable
- The hallmark of all long-term, goal focused, planning-driven investment policy is the practice of rationality over uncertainty. While there isn’t a precedent for a pandemic in the lives of today’s investors, there are ample examples of other “black swan” events such as the financial crisis of 2008, the 9/11 attacks, and Black Monday 1987.
- Each of these past events had a moment of maximum uncertainty, all followed by great economic expansions. (Let that sink in.)
- We cannot know which way the markets next 20% move will go. But we know with crystal clarity which way its next 100% move will be. Our advice hasn’t changed: Stand fast.
After you’ve cleaned out all the closets, completed all the puzzles, and done all the yardwork you’d care to do, here are some excellent resources to entertain and educate yourself.
We greatly enjoyed Spencer Jakab’s article in the Wall Street Journal this week entitled, “How I Learned to Stop Worrying and Love the Bear Market”.
Healthdata.org has produced the most efficient resource for tracking the virus’ progress by state and county. Just don’t spend too much time on it.
As for us, we are considered an essential business and remain open to serve you. Don’t hesitate to call us if you have any questions or just want to chat. For the many of you who have reached out by phone and email just to see how we’re doing, we are touched and thankful. We’re truly blessed and honored to be shepherding our family of clients through this most difficult time. We are standing fast against the storm. We encourage you to do the same.
Your First Coast Wealth Advisors Team
1 Datatrek Research, 3/30/20