Covid-19; It Sends a Shiver

28th of February, 2020

COVID-19, the coronavirus is making headlines and sending markets tumbling.

The media has whipped this up into mass hysteria given the actual numbers:

This virus had been discussed at length at Calnan Flack and probably with more authority than most investment firms.

See our strength is in our people and we are lucky enough to have Dr Robert Vagg on our team. As many of you may know Robert’s breadth of knowledge doesn’t just encompass financial markets, but he is also a distinguished scientist. (Click here to read Roberts very much condensed Bio)

I am writing this after numerous discussions with Robert and I am indebted to him for sharing his understanding of science and the natural world and helping me put the COVID-19 into perspective

Its staggering the impact that the media has had in insuring that this outbreak has made and retained it’s place in the headlines.

Much has been written, often with an emotive bias, but here are several articles that we would encourage you to have a look at.

This first article provides many interesting points and I quote from about halfway through the article:

“According to Dow Jones Market Data, the S&P 500 posted a gain of 14.59% after the first occurrence of SARS back in 2002-03, based on the end of month performance for the index in April, 2003. About 12 months after that point, the broad-market benchmark was up 20.76%”

An interesting table is provided below this quote, which of course must be viewed with the context of our Calnan Falck Economic Cycle Action Plan.

If you keep reading the chart titled “Immune: world epidemics and global stock market performance” places this within the context of the MSCI World index.

The full article can be found here:

https://www.marketwatch.com/story/heres-how-the-stock-market-has-performed-during-past-viral-outbreaks-as-chinas-coronavirus-spreads-2020-01-22 

The second article is valuable in that it looks at the short-term stock market reactions to the instances of viral epidemics. It includes the Spanish Flu pandemic of 1918-19, which resulted in the highest instance of deaths around the world. The following quote is pertinent:

“But think about what this tells us: A global pandemic that killed 3% of the Earth’s population only sent markets down 10% over a period of four months.”

The All Ords already has shed 12.1%. Of course, the media coverage is quicker and with the massive amount of media information that is not just available but pushed onto us, its hard not to be influenced.

This of course has been further exacerbated by how recently, anyone with a mobile phone is suddenly a reporter with images captured and videos shot which are distributed via social media in addition to being used by traditional media and news outlets.

Remember there is nothing unique about the coronavirus as any virus that is passed from animal to human is a corona virus.

https://www.tradersmagazine.com/news/just-how-badly-can-the-coronavirus-mess-up-the-stock-market/

Its important to remember that such sharp market reactions have the characteristics of a normal short-term sentiment cycle. If it was credit related then it would become more worrisome to us.

As we are in the grip of COVID-19, it is interesting to note the current market low is at a natural Vagg level of 6470 which has a history of providing long-term support.

These events always test our resolve as many investors suddenly become traders emotionally reacting to the news and many traders freeze like a kangaroo in the headlights abruptly becoming investors, so they don’t have to deal with their losses right now.

Stay tuned. This one certainly isn’t “where you’d rather be….”