Towards the end of last year, many of our email boxes at Sterling become flooded with industry “experts” providing their 2020 investment outlooks. What do you think was the one commonality we all found between the numerous different market outlooks? Not one single mention of a risk or cautionary tale about the coronavirus.
To quote William J. Adams, Chief Investment Officer – Global Fixed Income, at MFS Investments:
“The human toll of the coronavirus is undoubtedly tragic…behind the idiosyncratic and sometimes alarming headlines and investment commentary around the world is a notable facet of this health crisis: Economists, analysts and investors have now seemingly become medical professionals, speculating on the nature, duration and impact of a global risk that did not exist two months ago — a risk, that few can claim to have any real expertise on. The virus narrative exemplifies the challenge of predicting the future.”
This does not go to say that the current palpable uneasiness among many in the financial services industry and the general public alike is unfounded. We are continuing to monitor this very fluid situation and are evaluating a list of questions of our own including:
- Will global demand for travel decline? What if the 2020 Summer Olympics are affected? A global travel decline impacts more than just the airlines – travel websites, hotels, cruise lines, credit card companies, etc… We could see some unfavorable numbers from this industry when it comes time to report Q1 (and maybe even Q2) revenues.
- Will global demand for health staples exceed what can be produced? This one is pretty self-explanatory, but if manufacturing (especially in China) is slowed or stopped due to the virus – how does that impact many of the drug and medical companies supply lines to create the products being aggressively demanded across the world?
- Can the coronavirus be contained? Short of physical quarantine, there has not been an effective solution for containment of this virus. How long will it take for a vaccine or other solution to be functional in helping to prevent further global spreading?
- Will trade relations be impacted by potential border shutdowns? If quarantine becomes the only short-term solution and countries continue to shut down their borders, does global trade come to a screeching halt? Are there longer lasting political implications of a “fend for yourself” attitude?
Additionally, we are just starting to see real global investment implications. Outside of the already mentioned travel industry, Starbucks has closed more than 4,000 stores in China, and some U.S. Companies are pulling out of conferences in major cities (New York, San Francisco) due to fears of the virus spreading.
On the other hand, we are also seeing some strong opportunities through all of this turmoil as more people stay inside and away from more social environments. E-commerce, video streaming, and video game companies are primed for a massive usage boost as the general consumption of “home entertainment” is likely to continue to rise.
Let’s take a quick step back, however, and look at how “the markets” have reacted to previous viral outbreaks (remember, we’ve experienced this before – Zika, Ebola, SARS, H1N1, etc…)
When looking at the last few days in the markets, it’s important to consider some broader context as well. At Sterling, we are less concerned about the market fears and volatility in the coming days, weeks, and even months ahead because we know your investment goals extend far beyond these time frames.
So, what is Sterling doing in response to the current investment environment created by the coronavirus outbreak?
Over the past few years, we have already made changes to help insulate and “bubble wrap” your portfolios. We’ve consistently taken profits and invested into undervalued assets (this is a main focus of our rebalancing process). We strongly believe that by having a process, and sticking to it, we can make better overall investing decisions that are actually driven by our client’s changing lives (and goals) and not by emotions or the latest “trends”. As a result of our process, we are continually monitoring your accounts to make sure that they are consistently aligned with your goals and our recommended strategy.
The recent market events this past week is not a reason for a completely new market outlook. The coronavirus, however, is a great and humble reminder that there are always unforeseen risks in places you might not expect. While the current trajectory for China (and possibly the global economy ) is unknown, we at Sterling are sticking to our fundamentals and mission in helping you, our clients, balance the many moving parts of your financial lives and ultimately reaching your goals.
The views stated in this piece are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.