Two weeks ago, I’m not sure I could have spelled coronavirus, and I certainly didn’t know that the virus was a form of the common cold or a derivative of SARS. The news headlines seemed to have been fueling a lot of worry in the stock market these last several days.
I actually feel the bad news stream created opportunities for well-funded investment pros to sell high first near the top, then let the bad news stories scare the little guys into submission to sell their shares low. It doesn’t take much selling volume by strong hands at market highs – coupled with bad news – to get the weaker market hands to capitulate. Then the strong-hands, who sold a few shares near the top, buy back the scared shares at a lower price. This is my personal opinion and although interesting, daily market dynamics have little to do with the type of portfolio management and design we provide for our clients, whose objective is reaching their financial goals at a certain timeframe.
Another surprise again over the weekend, but this time a good surprise. News reports remarkably indicate now that over the weekend, European scientists have mapped the Wuhan coronavirus genome. Scientists surely appear to be making strong progress toward fighting this outbreak. Recall that less than 10 years ago, scientists mapped the massively complex human genome, and now they’re charging toward unprecedented breakthroughs that seemed well poised to continuously improve global health. Fast progress, and I believe in our capacity to solve problems and improve conditions over the long term and an increasingly faster pace – at least for some time for years to come.
My point is that news headlines seem fully intent on escalating fear, scaring us, creating profit for the news media by selling more advertisements. Meanwhile society is proving to be ever more responsive and resilient in solving major problems that less than a decade ago would have created major havoc. I feel that coronavirus – and other “disasters” – will be managed quite well before a major global outbreak destroys economic trade on a large scale.
Naturally, we do watch the slower moving heavy-weight economic indicators that can change markets – everything from debt quality, fed intervention, free cash flow, inflation and other indicators. These are the girders supporting the whole infrastructure, but I don’t believe a coronavirus outbreak in China will have a long term negative impact on US Stocks.
The headlines created a massive distraction in US Stocks, as seen in performance of the S&P 500. However, depending on which stocks you specifically own, the coronavirus may have had limited impact. There is no particular requirement that your portfolio must own hundreds or thousands of US Stocks with heavy international presence. Isolating your portfolio down to thirty to forty stocks can provide plenty of diversification, while reducing sensitivity to many of the follies in the news.
Let’s keep the coronavirus scare in perspective relative to the timing of your financial goals three to five years from now. Markets do go up and down, and in the majority of cases statistically, you are rewarded for that “up and down” risk with increased growth and profit over time over time. When you give yourself mental space and your portfolio time to reach those goals, generally speaking, you form a winning combination that will help you more reasonably reach your financial goals compared to reacting to news media week by week.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable. The S&P 500 is an unmanaged index of the shares of 500 widely held, predominantly large capitalization, U.S. exchange-listed common stocks. The index performance excludes dividends reinvested, fees and expenses. Investors cannot invest in any index directly.