Market Selloff a Self-Fulfilling Prophecy?

Just last week markets were embracing all-time highs, and now according to many reports it appears that the world itself is ending. Is it though?

We maintain our views on the US economy and the global economy as stated in an earlier release this year, and our views on the coronavirus have not changed much. If anything they may have improved. According to an aggregate of health agencies around the world, cases in the Coronavirus have been declining. As a side note, while the 2y-10y yield curve inverted earlier, the overall 3m-30y is still positive, albeit “u-shaped” currently. Bond markets are pricing in slower growth in the near term, as well as a rate cut by the Fed. We, again, think a rate cut is unwarranted at this time.

We expect volatility to continue, and without any earnings releases expected for some time, this will only add to the volatility. 2019 was a below-average year for volatility, so it’s no wonder investors are spooked by these sudden downdrafts.

The entire coronavirus epidemic is a true tragedy for all of those that have been affected by it. One death is one too many, and we aren’t pretending to be any type of medical whiz. With that said, the biggest risk of infection for the majority of the world is not from the virus itself, but the hysteria that follows.

Another thing to understand is that people that need cars, or refrigerators or other goods in China won’t suddenly stop needing said goods. We believe this applies to every country that is affected by the coronavirus. We expect economic activity to “slingshot” in the opposite direction once this all passes. When will it pass? There is no way to predict that now, and doing so is a fools game.

We reaffirm our 2020 forecast of 10-12% growth in the S&P 500, and as well maintain our views of increased volatility ahead as we predicted in January. Right now, however, it looks like the market is expecting lower-growth than that as it tries to make sense of itself.

We urge everyone to avoid panic, turn off the financial news, and stay the course. Speak to your financial advisor before making any changes to your plan or investment strategy, as these changes should be dictated by your individual needs and objectives.