The stock market has been battered this week and the apparent catalyst is the ongoing spread of the COVID-19 Coronavirus that originated in China. The selling has been widespread with markets around the globe declining by more than 10% over just a few trading sessions. However, the market reaction appears quite overblown to us.
Some relevant facts compared to seasonal flu
To date, there have been 82,000 reported cases worldwide, with 2,800 deaths. In the US, there are 60 reported cases with no deaths so far. To add some perspective, Influenza (or the Flu) is estimated to have infected 36 Million Americans last year and led to 34,000 thousand deaths. On average, Influenza kills about 40,000 in the U.S. every year. Globally, the Flu is responsible for about 650,000 deaths per year.
So far, the mortality rate for the Coronavirus has been reported to be about 3%, which is higher than the typical strain of Influenza. It is reasonable to expect that as researchers learn more about the Coronavirus and how to treat it, the response will become increasingly effective and the death rate will decline. Like the flu, those who have been most severely affected by the Coronavirus have been the elderly and those with pre-existing health conditions.
This is not the first virus-related scare we have experienced as a global community. Scares surrounding SARS, the bird flu, the swine flu, or more recently Ebola have similarly played a role in temporary negative market and economic developments. We believe that the swift and severe decline of the market this week has a lot to do with the advent of computer driven algorithmic trading which we discussed in greater detail in a previous blog post.
In the short-term, we expect volatility to continue. If history repeats itself, we think the market will recover fairly quickly once the situation begins to improve. More likely than not, this downturn creates an opportunity to invest in stocks at more attractive prices. Please also keep in mind that investing is a long-term endeavor and that it is important to remain well diversified.
Thank you very much for your continued confidence in our service and advice. If you would like to discuss our opinions, outlook, or your portfolio in greater detail, we would be happy to schedule a meeting or a conference call at your convenience. Lastly, don’t keep us a secret. If you know someone who would like help planning for their financial future, we will be pleased to speak with them to see how we many assist.
Horizon Wealth Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.