Market Brief February 27 2020

Given the abrupt decline in global stock markets over the past seven days, we thought a quick account update might be helpful. The news flow about Coronavirus has been fast and furious, and we’re sure you’re finding plenty of ways to track the day-to-day developments. This brief note will not focus on statistics or predictions about potential outcomes. Instead, we’ll concentrate on the root concerns surrounding the market decline.

Since learning about the outbreak in China, the markets have seesawed between indifference and alarm. The virus was initially thought to be a problem contained to ‘over there’ that was unlikely to spread to the US and Europe. And to be fair, that was essentially the case in previous epidemic scares such as Ebola, SARS, and MERS. While each of those scares took a brief bite out of markets, they never severely impacted global growth. As we all now know, since coronavirus was detected in Italy, Germany, and the US, markets have swiftly reassessed their ambivalence.

Our assessment of the global economy is unavoidably colored by the potential for a global pandemic. The unprecedented municipal/provincial quarantines seen in China and the interruptions to the education/social systems in Japan, Korea, and now Italy are severe. These measures will restrict global supply chains as well as the ability/willingness of consumers to spend. There is little doubt that if these policies remain in force for an extended period that global economic growth will slow and potentially contract. Yet it is still not a foregone conclusion that ‘an extended period’ is necessarily in the cards.

What might put an end to the market anxiety? Well, the obvious answer is that an effective therapy/vaccine would offer relief to those with severe illness, as well as restore confidence in consumers. Additionally, a reaffirmation of accommodative monetary policy and a pledge by governments to provide fiscal support could help buffer against recession. In fact, the fiscal/monetary playbook being used in China has already begun to yield support to their markets and economy.

The visceral nature of the virus and the potential disruption to people’s daily lives makes this period in the markets especially tense. And going forward, we expect the market will continue to be headline-driven with knee jerk reactions to both the upside and downside. 

As always, we are keeping an open mind to both positive and negative outcomes. If you have any questions or concerns, please do not hesitate to reach out. We will plan on sending more detailed updates in the coming weeks/months as necessary.

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