Special Edition: Coronavirus Update
Coronavirus fears continue to dominate headlines as equities markets around the world gyrate wildly. This week's daily returns saw the S&P 500 go up 5%, down 3%, up 4%, down 3% and down 2%. This means we incredibly finished the week UP fractionally. Let's talk about some of what I'm reading, seeing, and thinking. For starters, what you're reading is almost certainly not what I'm reading. It's a rare day I find myself on cnbc.com or Yahoo! Finance. Instead, a subscription to Jason's Goepfort's Sentimentrader.com website yields some interesting nuggets. For instance, Goepfort's "Risk Appetite" Index is currently registering a "1" on a scale of 1-100. The index is composed of things like credit spreads, equity and foreign exchange volatility, gold prices, and sector relative performance. Since 1997 there has been 63 days when the index is below "5." Three months later, the S&P 500 has been higher all 63 of them with an average return of 7.8%. The 12 days the index was below "2," the returns were even better. Things might get worse before they get better. As I've said earlier, nobody knows for sure what will happen in the near-term. We're starting to see schools cancel classes and companies offering, or requiring, their employees to work from home. None of this is good for the economy or consumer confidence. Fear, at least in the United States, seems to be just beginning. While fear is normal, it's always good to have an appropriate handle on it. What we can also handle is our reponse to fear. Although we can't impact the short-term outcome of the financial markets, we can take other appropriate actions like reviewing and reassessing an "Emergency Fund." No, not canned food and toilet paper (although you can reassess that, too, if you like), but the amount of easily accessible cash and short-term investments you have on hand. Do you have three to six months of emergency fund money on hand? It's possible we could start seeing larger amounts of layoffs if the spread of the virus gets worse. Relatedly, it's always a good idea to have your resume up to date and ready to go. Making sure you aren't carrying high interest debt is another area to examine. High interest debt when you're cash flow negative means the interest can potentially spiral out of control. Spiraling high interest debt can put a serious dent in retirement plans. Lastly, what opportunities will the virus present? Sectors like oil, travel, airlines, casinos, and cruise lines have all been particularly hard-hit. I'm particularly drawn to the cruise lines. Stocks like Carnival (CCL) and Norwegian Cruise Lines (NCLH) are down 45-55% YTD. In a sense, this pandemic is not much diffent than Chipotle's E. coli scare in 2015 & 2016. Chipotle would go on to lose about 2/3 of its value over the next year or two before roaring back with a 270% gain. Timing and patience will be key but it's good to start thinking about, and be stalking, ideas right now. I want to reitterate again that what we're currently experiencing is very different than 2008. That was a crisis caused by people owning 3-4-5 properties with no money down and no intentions for the properties other than a quick flip for a substantial profit. Banks were packaging loans and saying there was virtually no risk of default when, in reality, there was serious risk. This isn’t that. The stress on the financial system should be short-term. To reitterate previous advice, continue to stay focused on a resilient economy, solid credit markets, low tax rates, and ultra low interest rates. Your investments are meant to support your long-term objectives, not today's needs. Make your regular retirement plan contributions and contribute even more if you have it. If you have any questions about your specific situation, please don't hesitate to contact me. I'm here to help. And remember, this too, shall pass.