Commentary 3/2/2020

Last week, U.S. stock indices lost significant value when the coronavirus spread outside of China, and expectations for companies’ performance in 2020 changed. At the start of the week, markets anticipated positive earnings growth (i.e., higher profits) during 2020. By the end of the week, they suspected earnings might be flat for the year.

At the end of last week, FactSet reported 68 companies in the Standard & Poor’s 500 Index had offered negative earnings guidance for the first quarter. In other words, the companies didn’t expect to be as profitable from January through March as analysts anticipated. That’s fewer companies than normal, relative to the five-year average. However, the number could increase. FactSet’s John Butters explained:

“…early in the quarter, a number of S&P 500 companies stated they were unable to quantify an impact from the coronavirus or did not include the impact from the coronavirus in their guidance. Thus, there may be an increase in the number of companies issuing negative guidance later in the first quarter as these companies gain clarity on the impact of the coronavirus on their businesses.”

Changing profit expectations are one concern for investors. Another is fear. Investors are afraid the current economic expansion and bull market may end. At this point in the economic cycle, investors often are both hopeful and doubtful. The Economist explained:

“[Investors] hope that the good times will last, so they are reluctant to pull their money out. They also worry that the party may suddenly end. This is the late-cycle mindset. It reacts to occasional growth scares – about trade wars or corporate debt or some other upset. But it tends not to take them seriously for long.”

Currently, investors are reacting to the coronavirus. They fear it will be the catalyst that sparks recession. While that’s possible, in the past, markets have responded negatively to coronaviruses and then recovered. (Keep in mind, past performance is no indication of future results.) Barron’s cited a private wealth manager who pointed out:

“…this isn’t the first time that an epidemic has rocked the stock market. The S&P 500 fell 15 percent after SARS hit the market in 2003 but was up just over 1 percent six months after the outbreak began.”

No matter the reason, it is unnerving to be an investor when stock markets head south. There is nothing comfortable about watching the value of your savings and investments decline. Regardless of the discomfort, selling when markets are falling has rarely proved to be a good idea. Investors who stay the course may have opportunities to regain lost value if the market recovers, as it has before.

Investors also may have opportunities to buy shares of attractive companies at reduced prices. Warren Buffet offered this reminder last week in a Barron’s article:

“…[the coronavirus] makes no difference in our investments. There’s always going to be some news, good or bad, every day. If somebody came and told me that the global growth rate was going to be down 1 percent instead of 1/10th of a percent, I’d still buy stocks if I liked the price, and I like the prices better today than I liked them last Friday.”

Until the full effect of the coronavirus is known, markets are likely to remain volatile.

WHAT YOU SHOULD KNOW ABOUT THE CORONAVIRUS. The coronavirus is now officially known as Coronavirus Disease 2019 or COVID-19. Last week, it spread to countries outside of China. If there is any good news about the contagious disease, it is COVID-19 may be relatively mild.

In its February 28 briefing, the Director-General of the World Health Organization (WHO) stated, “It also appears that COVID-19 is not as deadly as other coronaviruses including SARS and MERS. More than 80 percent of patients have mild disease and will recover.”

The Director-General identified the symptoms of COVID-19 stating, “…for most people, it starts with a fever and a dry cough, not a runny nose. Most people will have mild disease and get better without needing any special care.”

Currently, more than 20 vaccines are being developed. In the meantime, there are things you can do to protect yourself. They include:

• Washing your hands with soap and water regularly or cleaning them with an alcohol-based hand sanitizer.
• Cleaning and disinfecting frequently touched objects and surfaces.
• Cover your mouth and nose with a tissue or your sleeve – not your hands – when you cough or sneeze.
• Avoiding close contact with people who are sick.
• Staying home and avoiding travel when you are sick.
• Contacting your medical professional when you experience symptoms, which include shortness of breath.

WHO also recommended educating yourself about the coronavirus. Make certain to gather information from reliable sources, such as WHO or the United States’ Centers for Disease Control (CDC), and have healthy skepticism when it comes to unknown sources. Misinformation and disinformation about COVID-19 have been spreading almost as quickly as the virus itself.

The Director-General closed last week’s briefing by saying, “Together, we are powerful…Our greatest enemy right now is not the virus itself. It’s fear, rumors, and stigma. And, our greatest assets are facts, reason, and solidarity.”

If you would like to talk about the potential economic effects, give us a call. We look forward to talking with you.

Weekly Focus – Think About It

“The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
–Sir John Templeton, Investor, asset manager, philanthropist

<sub>* These views are those of Carson Coaching, and not the presenting Representative, the Representative’s Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
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* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
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* Consult your financial professional before making any investment decision.</sub>

_{Sources:
https://www.cnbc.com/2018/12/31/stock-market-wall-street-stocks-eye-us-china-trade-talks.html
https://www.cnbc.com/2019/12/26/us-stocks-year-end-rally.html
https://insight.factset.com/are-analysts-slashing-sp-500-eps-estimates-for-q1-due-to-the-coronavirus
https://www.barrons.com/articles/dow-jones-industrial-average-suffers-worst-week-since-2008-recession-watch-begins-51582941142?mod=hp_DAY_1 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/03-02-20_Barrons-This_Downturn_Might_Just_be_Getting_Started-Let_the_Recession_Watch_Begin-Footnote_4.pdf)
https://www.economist.com/finance-and-economics/2020/02/27/markets-wake-up-with-a-jolt-to-the-implications-of-COVID-19 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/03-02-20_TheEconomist-Markets_Wake_Up_with_a_Jolt_to_the_Implications_of_COVID-19-Footnote_5.pdf)
https://www.barrons.com/articles/cash-rich-stocks-to-buy-amid-the-coronavirus-selloff-51582936062?mod=hp_HERO (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/03-02-20_Barrons-The_Dow_had_Its_Worst_Week_Since_2008-Where_to_Find_Cash-Rich_Stocks_in_the_Coronavirus_Selloff-Footnote_6.pdf)
https://www.who.int/dg/speeches/detail/who-director-general-s-remarks-at-the-media-briefing-on-COVID-2019-outbreak-on-17-february-2020
https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-COVID-19—28-february-2020
https://www.azquotes.com/author/14517-John_Templeton}