Has the bull caught a deadly virus?
The Coronavirus has certainly dealt a quick blow to the markets. The ongoing quarantines, lost production and supply chain disruptions are putting further stress on a Chinese economy that was already growing at its slowest level in 30 years and still dealing with the effects of the U.S. trade war. With each passing day there is increased concern that this China problem will become a U.S. problem that derails one of the longest periods of expansion on record. We believe this is a fair concern that cannot be ignored.
Every expansion ends and is followed by a recession. Every recession ends and is followed by an expansion. This is the normal ebb and flow of the economy that has been going on for a hundred years plus. There is nothing in these headlines that suggest that this overall economic pattern won’t continue in the future. At some point, markets and the economy contract and reset themselves for the next period of expansion. Over the course of the next 30 years there will be no less than three expansions and three recessions based on the historical pattern. And guess what, for those of you who have been clients with us for 30 years or more, that’s exactly what you have experienced during that time – 3 recessions (1992, 2001 & 2008) and 3 expansions (all the other years!)
So is Coronavirus the “thing’ that precipitates an economic recession in the near term. Frankly, maybe. Remember though most of the time these types of events produce more of a V shape in the economic pattern. The event produces an immediate impact on growth and then once resolved, acceleration occurs as that pent up demand is unleashed. Certainly, that was the template for prior outbreaks like SARS or Ebola.
When the next recession does occur (and it will!). We believe that it will be quite mild and not a repeat of the financial crisis of 2008. Why? The combination of low interest rates and low unemployment should damper any economic decline. The absence of any obvious asset bubbles (i.e. think real estate in 2008) also suggests a milder decline when it does occur.
So, what to do for now? Well, bottom line, stay consistent and stay diversified. Your portfolios are predominantly invested in large companies that make the stuff that the world will continue to use each and every day. They are highly diversified (often with hundreds of different companies in them) and well balanced between growth companies and dividend paying companies. If you have some extra cash, now may be a great time to actually add to your accounts.
And finally, a little prospective on the virus itself as the media (and even the CDC) are in overdrive mode which means there is little perspective provided and fear of the unknown is sky high. Every year in this country for the past decade, there was an average of 30-45 million cases of the flu that resulted in 20,000 – 40,000 deaths according to the CDC. Bottom line, the regular run of the mill flu is far deadlier to you living here in the U.S. So, wash your hands and take your flu shot!
In the meantime, tax season is underway at the office and the pattern so far is decent news with most experiencing lower tax bills due to the continued effects of the tax cuts in 2018. As a reminder, please be sure to RSVP to our next client dinner at 5:30 on March 26, 2020 at the Country Club of Orlando. (1601 Country Club Dr. Orlando Fl.). We have had a change of speaker for that event and are pleased to welcome Emily Tillman who is an Equity Investment Director with American Funds.
We look forward to seeing you on March 26.