Updated: Mar 6
Don't panic over Coronavirus and the drop in the stock market. As of Friday's close, the S&P 500 was up 3.61% for the year. We've known about the Coronavirus for more than a month
When stocks are falling there is only one answer that is consistently correct as to why - because there are currently more sellers than buyers. As to why each seller is selling is only a guess, sometimes educated, sometimes not.
Historically, February is the 3rd worst month for stocks on a seasonal basis. That has been relatively consistent.
If the concern is that the Coronavirus is now possibly a pandemic what are the likely investment outcomes? Our expectation is that the US will outperform. We believe that the US will be the best safehaven given the strength of the $USD and the positive return of US Treasuries for both US and foreign buyers. The US economy is also the most resilient, so we expect the US stock market to outperform other stock markets on a relative basis (but not without an overdue correction).**
On the bond side, US Treasuries should outperform as should US Agencies. MBS and high grade corporate bonds should be neutral and high yield bonds will underperform due to their high exposure to energy markets (in a global slowdown, energy prices usually fall).**
In the US stock markets, we believe that interest rate sensitive sectors like Utilities and REITs could outperform. Companies that are concentrated around Chinese supply lines, travel, and energy are likely to underperform.**
We do not see the Coronavirus as a reason to panic, we see it as a reason to assess your asset allocation and move away from areas of greater risk to areas of lower risk.
** Our outlook for certain asset classes and sectors are not investment recommendations, implied or otherwise. You should asses your own risk and return objectives and act accordingly.