Market Perspective 3/9/2020
The entire pulse of financial markets has shifted from greed to fear in just a few short weeks. Note that the financial “markets” are a collection of all investment markets worldwide, and also note that there is a wide spectrum between the extremes of fear and greed. Most of us fall somewhere in between the two extremes.
I prefer to make fact-based decisions, yet the current markets are trading based on emotion, in some cases bordering on hysteria. I’ve read no fewer than five online articles in the past day warning people they should not drink bleach to kill the coronavirus – the fact that this was deemed newsworthy is itself hysterical.
Here is an attempt to inject some calm perspective. Consider the following:
Here is a chart of the S&P 500, showing a drop of 19.8%.
Can you guess the time period?
Here are some hints: the chart does not reflect any dates in 2008, 2009, 2011 or 2016 – all of which had intra-year declines of more than 19.8%.
Do you recall any of the market headlines from the fourth quarter of 2018? Remember, 2018 only ended about 15 months ago. Chances are that anyone who received today’s email from me was a client of Weller Group during the fourth quarter of 2018.
Here were some headlines: Oil was dropping and would cause the global economy to suffer, the Federal Reserve was going to increase interest rates, the trade war with China and the U.S. had no end in sight, and we could be assured by countless media outlets there was massive global economic uncertainty.
Many headlines sound familiar 15 months later, of course, with the addition of coronavirus.
Oil is the single biggest reason for market volatility for the present day. Over the past weekend, OPEC+ (mainly, Saudi Arabia and Russia) refused to reach an agreement about limiting the supply of oil. Today, the price of oil has dropped to approximately $34 per barrel as of 10:45am EST, from approximately $51 per barrel as of the end of February. My takeaway from this: the price of oil has dropped in nine days by about 33%. Despite the probability of at least some short-term disruptions in world-wide travel due to virus concerns, I don’t believe it is even close to realistic the world will collectively decrease our consumption of oil by a third. It should be interesting to know during the worst financial crisis any of us have lived through – 2008 through 2009 – the daily consumption of oil averaged approximately the following for each year-end. Notice the lack of substantial decline despite massive world-wide economic strife:
- 86 million barrels 2008
- 85 million barrels 2009
- 88 million barrels 2010
My current thoughts continue to be that the common flu is far, far worse than the coronavirus. I understand there are many (Hundreds? Thousands?) variations of the flu, and COVID-19 is not the same as the common flu (which is why it has been given a different name). Although I’ll never be confused with being a doctor, and admittedly I am ignorant about most medical topics less than a minute into any conversation, I can look at raw data and reach the following conclusion (all sourced by the CDC): this season, in the U.S. alone, approximately 34,000,000 people have contracted the common flu and nearly 350,000 have been hospitalized. 20,000 have died. 136 of the deaths have been young children (pediatrics).
I’m having a hard time understanding why there isn’t hysteria about the common flu. And while I’m completely empathetic to families of the approximate 4,000 individuals who have died world-wide from coronavirus, I am personally far more concerned about the common flu than I am of the coronavirus. Which is to say, I’m not the least bit concerned about contracting the flu. As a young boy, my mom taught me to wash my hands, practice good hygiene, drink fluids, rest when I’m sick, cover my nose when I sneeze and my mouth when I cough, and avoid contact with people if I was obviously ill. I’m confident about 90% of the world population also knew this prior to the past few weeks. In short, while I think any illness is horrible, I’m baffled by the frenzy created by the coronavirus.
If there really are hordes of people who are quarantined, imagine how many will recover and then have to go back to earning a living, spending money, raising families, buying food, and in general contributing to society. And in case you missed this positive news, the U.S. added 273,000 new jobs during February, the unemployment rate is 3.5% and interest rates are at or very close to historic lows.
If you want to make any changes with your investments, please contact me by emailing email@example.com or text or call 315-524-8000.
On Friday 2/28/2020 I sent an email detailing my thoughts about the virus, and included some links to various websites. Note that I’ve uploaded a number of additional newsletters and links to our website, which can be accessed at www.wellergroupllc.com.