Granite Group Advisors

This week we have seen markets pull back at an incredibly quick pace from their peak on Feb 19^th .  Investors need to recognize a few points about the speed of the selloff that is somewhat different than the past.  Obviously, there are risks that are associated with the Coronavirus outbreak that will have a short term effect on the economies of the world, but it is important to take a step back look at some information. For those that think we are at the edge of complete economic collapse, that thought might be a bit over blown.  We have mentioned in a previous blog that according to the CDC, 61,000 US citizens died from the flu two years ago. To put that in perspective, the global death rate from this virus is a few thousand. While all deaths are tragic, the Coronavirus is infinitely smaller when compared to what the US flu causes annually.  Secondly, China has already started seeing a slowdown in new cases and has started to get back to manufacturing and shipping. Coronavirus, according to the experts, will subside as we approach warmer weather. There are reports that 3 different companies are close to having a testable vaccine.  

The S&P 500 is currently at 2,900, which is pretty close to where we were in the middle of October of 2019.  That was right about when investors were notified that a deal had been struck between the US and China signaling an end to the trade war.  In addition, we had not seen a healthy correction in the markets in quite some time, and valuations had gotten a bit overstretched in the first month and a half of this year. Corrections are very typical in all markets and we have not had a meaningful one since the 4^th quarter of 2018.  If one had invested in the markets over the last decade, one would have seen this kind of sell off at least 10 times if not more.  Yet this one, because it is associated with the unknown of a disease, has caused the media to panic the population in a way  that we have not seen since the 2008 financial crisis.  While this is disheartening, it is important to know that this will pass and we will recover and move forward. 

While the action of the markets and the news over the last few days seems somewhat frightening, here is our take for your consideration.  The markets were at a peak on Feb 19^th and had shaken off the news of the Coronavirus. Most of damage is abroad as the outbreak will cause a temporary dislocation in the economic systems of many countries.  At this time, China is just starting to move forward, and the US seems to be well insulated, as we have not had any deaths yet.   GGA believes this current will be temporary, but it will impact global GDP.  At this time, the US economy is in good shape but US companies receiving earnings from the affected areas will have a short-term earnings hiccup.  Markets are generally good predictors of the future.  At some point when markets calm down, we will re-enter a growth phase, and whether that recovery is V shaped or U shaped,  economic activity will resume.

After today’s action, the S&P will be down a few percentage points for the year, so it isn’t time to panic.  You can be prudent and take opportunity where it lies, and that means an entry point into the market at much lower prices than last week.  This will take some time to work out, but to put this into perspective: the 4^th quarter of 2018 was much worse in terms of market action than what we are seeing at this moment.    Please feel free to call and discuss if you are concerned in any way!!!