Focus on Long-Term Market Health

March 4, 2020News

Focus on long-term market health: stock prices are already discounting an economic hit
We are all concerned about how the Covid-19 coronavirus will impact us. In addition to the costs of human life and suffering, it is having an economic impact. As one would expect, the stock market reflects this – the S&P 500 is down about 12% from its all-time highs reached just nine days ago on February 19th. The index has still returned about 9% over the past twelve months. The virus is most scary now because it continues to spread geographically, and no one knows how it will play out

It will most certainly expand in the US and around the globe. The fatality rate is estimated to be about 2% among those who have symptoms of the disease – that’s low compared to many previous epidemics.

It is important to remember that the virus’s spread will be finite. We can hope that it behaves like a typical flu virus, spreading more readily in cold temperatures, but less communicable in the warmer months. Under a bad scenario, it could take a year to develop a vaccine, but that should certainly curtail the virus’s expansion. Economic activity will slow as travel is limited, factories close, and groups of people are sequestered. The economic results could be much like a mild recession.

From an investment standpoint, we are as always taking the long-term view. Whether the reach of the virus slows next month, or continues to spread into the Fall, the impact for most investment time horizons is minimal. We have endured various epidemics already this century, including SARS, swine flu (H1N1), MERS, Zika, and Ebola. By this time next year, and hopefully sooner, we can expect to close the chapter on Covid-19.

Market drops are inevitable. We build portfolios of high quality stocks precisely so they can weather financial turbulence, and the companies can even capitalize on the opportunities presented. As long as your portfolio continues to match your time horizon and risk tolerance, the best course may be no action at all. Stock prices are already discounting an economic hit, potentially creating opportunities to capture the upside as the global economy recovers.

You should further know that Woodstock has a disaster recovery plan in place enabling the company to operate normally should we need to close our physical office temporarily.

If you have specific questions or would like to discuss these matters further, please call or email either your portfolio manager or myself. Thank you for considering these matters, and keeping in mind the long-term view of your financial objectives.

Adrian G. Davies, CFA
Executive Vice President
Woodstock Corporation