What Happened on Monday and Tuesday?
The acceleration of new coronavirus cases outside China over the weekend raised investors’ concerns over its potential ability to damage global growth.
On Monday, the DOW fell over 1,000 points yesterday as U.S. equities suffered their worst daily drop in two years, finishing down 3.4% on the day. Emerging markets (-3.7%) and EAFE (Europe / Asia) equities (-4.0%) suffered the largest losses.
On Tuesday, the DOW fell another 900 points, or another -3.1%, putting the two day drop at -6.6%.
The flu-like virus has now infected more than 80,000 people, 10 times more cases than the SARS epidemic in 2003. Just as data from China was showing a stabilization in the number of new cases, the sudden rise of infected people in Italy, South Korea, and Iran renewed fears of a widespread pandemic. Combined with last Friday’s weak U.S. manufacturing and services economic figures, this was the perfect recipe to trigger risk aversion.
Where Do We Go From Here?
The World Health Organization (WHO) has said the epidemic in China, where it began in December, peaked between Jan. 23 and Feb. 2 and has been declining since.
It’s impossible to predict if markets are overreacting or if the worst is yet to come. WHO Director-General Dr. Ghebreyesus said: “For the moment, we are not witnessing the uncontained global spread of this coronavirus, and we are not witnessing large-scale severe disease or death. Does this virus have pandemic potential? Absolutely. Are we there yet? From our assessment, not yet.”
Many strategies have and can be undertaken to limit downside risk during market volatility. This includes increasing your fixed-income content, favouring dividend-paying equities, and using low-volatility mandates.
The near-term outlook for equity markets has undeniably become more uncertain due to these new coronavirus cases springing up outside of China. From a long-term perspective, it’s important to note that almost every year comes with its own set of economic, financial or political events that give investors a reason to remain on the sidelines. The spread of the coronavirus is one of these such events. While these types of shocks almost always lead to weakness in risk assets, equity markets have in the past been resilient and ultimately remained on an upward course over a longer time-horizon.
Although the future is uncertain, investors can benefit from financial markets by maintaining a long-term perspective and remaining invested in a well-diversified portfolio. We’ll continue to monitor the situation closely and provide relevant updates as new data allows for a better-informed assessment of the current situation.
If you have questions or concerns about your portfolio positioning, please contact our office anytime.
This information is provided for general information purposes only. It does not constitute professional advice. Please contact a professional about your specific needs before taking any action.