COVID-19 – What are the Investment Implications?

COVID-19 is a new disease, caused by a new coronavirus that has not previously been identified in humans. COVID-19 is contagious and is spreading from person to person, but the ease of transmission is still unclear. Current symptoms reported for patients with COVID-19 have included mild to severe respiratory illness with fever, cough, and difficulty breathing. The CDC believes at this time that symptoms of COVID-19 may appear in as few as 2 days or as long as 14 days after exposure. The biggest risk of a deadly outcome at this time is with the elderly population and those with heart conditions or immune deficiencies. Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS) are two other examples of coronaviruses that also originated in animals and then spread to people.

COVID-19 appears to be much more contagious than MERS and SARS, but thankfully, less deadly. Prior to last week, the vast majority of cases had been isolated to China, but that appears to have changed with a significant jump in cases across Italy, Iran and South Korea.

Investment Implications

Most experts continue to believe there will be a significant hit to Q1 GDP, but a V-shaped recovery could occur in Q2. Countries in Asia will be the hardest hit as China is most often their largest trading partner and supplier. The chart below highlights the reduction in Q1 GDP growth estimates from Goldman Sachs.

Thus far, Q1 earnings growth estimates in the S&P 500 Index have fallen from 4.5% at the end of 2019 to 1.5%growth today. As indicated earlier, negative guidance has increased and further downward revisions are likely. Using history as a guide, these outbreak events tend to be short-lived as markets eventually look past them to-wards economic growth and corporate earnings. In almost all cases, markets were higher six months or a year following a major outbreak like SARS in 2003, Ebola in 2013 or ZIKA in 2016.

Conclusion

Given recent market volatility, the spread of the coronavirus and its impact on global economic activity is increasingly agitating investors. Trying to predict when it will end or the final outcome is not possible. The best approach in our view it to have a well-diversified portfolio, by asset type and region. Please contact us with any questions or concerns. We will keep you apprised as events unfold.

Subscribe to our Newsletter!

* indicates required




*As of 2/28/20