Over the last months the world has watched as health authorities around the globe scramble to avoid the worst outcome of the Coronavirus, a novel pneumonia first reported in late December, 2019. It started in Wuhan, the seventh largest Chinese city with a population of 11 million, best known as the Chicago of China due to its location near major waterways and its role as a transportation center. What quickly followed was an unprecedented quarantine of 60 million inhabitants living in and around Wuhan and a progression of reports that followed the spreading virus around the world. Through it all U.S. financial markets continued climbing into one of the best starts until last week. Then markets blinked.
No one knows what will happen next, but keep three things in mind as it relates to coronavirus. One, things will likely get worse before they get better. What was once thought to be largely relegated to China has now spread widely. Infections are sprinkled throughout the globe, and countries such as Italy, Iran and South Korea are now dealing with their own concentration of infected patients.
Two, not to downplay the human toll, but this too shall pass. Since 1900, three influenza pandemics (1918, 1958 and 1968) have occurred. There also existed several pandemic threats, including the 1976 swine flu, 1977 Russian flu and 1997 avian flu. SARS in 2002 was not classified as a pandemic. Controls such as quarantine, inoculation and limits on travel helped to keep these outbreaks from spreading. If, as reported on Feb 24, with a death toll in the thousands, the rate of new infections appears to have peaked in China, it is due to such measures this time too. It is expected that other governments will apply similar decisions. World health authorities are working feverishly to leverage knowledge and data to arrest the spread of coronavirus.
Three, markets will rebound. Looking back at stock markets during these pandemics and near-pandemics, no fixed conclusions can be drawn. Some market were up, some down, but it depended more on the economic conditions then in place. In today’s case, economic fundamentals remain solid, like they were last week and like they were last month. There may be negative effects on economic growth in the short-term, but fleeing investors are working more from the fear of economic damage than from any real effects yet seen.
What is an investor to do? Stick to your plan and stay invested. Keep your portfolio engaged. If markets pull back, rebalance into classes that have declined. For more than a century, this is a strategy that works.