Coronavirus & U.S. Stocks

Monday’s market selling was aggressive, closing near the day’s lows after trying to rally earlier in the trading session.  Tuesday’s market open was weak and deteriorated quickly delivering another day of big declines. This is typical behavior, rapid declines after a long series of advances.  Investors are dealing with the combination of elevated stock valuations and the development of the Coronavirus epidemic potentially becoming a pandemic.

Data about the Coronavirus remains noisy, but here is what we do know:

  • The death rate is relatively low, especially outside of China
  • Most cases, by far, remain in China
  • The U.S. economy is adjusting from a position of strength
  • Recent history with stocks and viruses has proven short lived
  • A vaccine is expected to be available in 6-8 months (much faster) Edited update February 27th, 2020.
  • The Fed stands ready to lower rates and increase bond buying activity
  • The president has requested $2.5 Billion from congress to fight the virus here in the U.S., may receive even more funding.

For additional perspective, read the recent post from Brian Westbury at First Trust Portfolios.

The biggest issue is around mitigating the spread of the virus.  As government policies and human behaviors adapt, we are likely to see a drop in new cases and less economic impact.

At this point it does not look like the Coronavirus will cause the U.S. economy to enter a recession or stocks to enter a bear market.  That could change and ongoing monitoring of the situation is warranted.  Ideally, the market reaction may provide some good buying opportunities.

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