BEAR MARKET: After peaking on February 19, the S&P 500 dropped 26.64%. Therefore, we officially entered into bear market territory. Markets bounced substantially on Friday to stem the losses quite a bit. The steep sell-off is, of course, being driven by the coronavirus pandemic, and volatility is being fueled by computer-aided, algorithm-based trading programs. February was a month of strong U.S. economic data, but it has all been swamped by COVID-19. Thursday was the worst day with U.S. stocks down about 10%. That came after a convergence of events such as the flying ban involving Europe, major sports leagues suspending operations, and a variety of other announcements which made it clear the virus will stay in the news and impact commerce for a while. Not helping matters, Saudi Arabia said it will increase oil production, while Russia vows similar action, which will likely have a net negative effect on U.S. industry (particularly the energy industry) although consumers will get a boost with lower gasoline prices.
CORONAVIRUS STATISTICS: Keep watching the Worldometer.com site. It is up-to-date and objective. You can get to it here. The active cases were decreasing, and now they have been increasing for a week. I’m waiting for when that statistic crests again as the wave of European virus sufferers grows. However, I believe that this statistic will probably spike for a bit as testing, especially in the U.S., becomes more widespread. Many people who have not shown up on the statistics (which I believe is probably a much higher number) may start increasing those statistics.
ENCOURAGING DATA FROM CHINA: The data from China on active coronavirus cases is very encouraging. But can you trust Chinese data? Bruce Aylward of the World Health Organization recently reported the following (this is a long quote, but one that I believe bears reading in full):
“The big question is, are they hiding things? No, they are not. We looked at many different things to try to corroborate that cases are dropping. When I went to fever clinics and talked to people working there, they’d say, ‘We used to have a line out the door, and now we see a case once per hour.’
- “According to the national data, fever clinics went from seeing 46,000 people per day at one point and it’s now down to 1,000. So there’s been a huge drop in numbers into the feeder system.
- “Second thing: When talking to physicians in hospitals, I heard again and again that we have open beds, we can get people isolated even more rapidly. I heard that in Wuhan and other provinces.
- “The third thing: I talked to people running clinical trials of drugs, and they are having a problem recruiting patients. All these things helped corroborate [China’s data].”
WHY WAS ITALY SO VULNERABLE?: Italy has one of the oldest populations in the world (second only to Japan). About 23% of its population is over 65. The death rate is clearly higher in Italy than in other places where the amount of known cases has spiked, but the average age of those who have died in Italy is 81.
APPLE STORES: On Friday, Apple announced that it had reopened all 42 of its retail stores in China after many were shut for nearly a month due to the outbreak of the coronavirus there. Apple recently decided to close all its retail stores in Italy to help contain the outbreak there.
U.S. LABOR MARKET STAYING STRONG: The coronavirus issues have not yet affected the labor market, although it stands to reason that it will in the weeks to come. In the week ending March 7, there were 211,000 new claims for unemployment, a 4,000 decrease from the prior week, and a number that is keeping this statistic in a very healthy place.
STUPID THINGS?: A very bluntly titled article in Business Insider identifies “4 Stupid Things To Do With Your Money When the Stock Market is Tanking”. One of those four stupid things is “Sell off your investments.” “It may be tempting to ditch stocks that are losing money, but….[r]esearch shows that a buy-and-hold investment strategy, which is designed to withstand wide swings in the market, is the best approach for the vast majority of investors. In fact, active trading–even in a bull market–rarely produces better returns.” Don’t panic.
THE SPANISH FLU: We have been hearing a good deal about the Spanish Flu of 1918. For context, there were about one billion people on the planet at that time. The Spanish Flu was an H1N1 variety of the flu, like the 2009 swine flu. The estimates are that the Spanish Flu killed between 20 and 100 million people, or between 2.0% and 10% of the entire world population. Today, the equivalent would be a death toll of between 150 million and 760 million people. From its highest point to its lowest point, the stock market fell approximately 11% during that pandemic.
PRIOR EPIDEMICS: Over the last forty years, there have been a dozen notable epidemics, including HIV/AIDS, Zika, Ebola, MERS, H1N1 and others. The worst hit the S&P 500 took was 15.7% during the HIV/AIDS outbreak. Coming in a distant second was the measles epidemic of June 2019 when the market dropped 6.1%. Generally epidemics do not have a lasting impact. The difference with this epidemic is that the attempts to stem the virus involve ceasing of economic activities in geographic areas. In this age of economic interdependence, and given the substantial interventions taken by governments and private entities to stop the spread, this epidemic has already had a strong short-term market effect, and it will likely cause at least a short recession (second and third quarters of 2020). But, even though past history is not a guarantee of future results, the markets may be over reacting. Time will tell.