Pandemics and Investing

By Published On: February 10, 2020Categories: Market Commentary2.1 min read
A couple drinks coffee together looking into the distance, pandemic and investing concept.

Pandemics, defined as contagious diseases without a ready cure that spread across borders, are tragic and disruptive events. Serious ones occur roughly every 10-20 years, at times claiming over a million lives and inflicting economic harm.

Will the new Wuhan coronavirus become a pandemic, and what should investors do?

There is cause for major concern: reports of infection grow rapidly each week and have spread to 24 countries, while vaccines may not be widely available for six to 12 months. Plus, infection may be underreported. The good news is aggressive quarantine measures in Wuhan seem to have slowed the virus’ spread, buying the global health industry time to prepare.

Many are trying to draw insights from recent pandemics (SARS in 2002, swine flu in 2009, MERS in 2015), which are similar to the Wuhan virus. The early read is that the new strain spreads more quickly but may be less deadly. Still, experts point out that there are many unknowns regarding incubation, transmission and evolution. Plus, China’s economy is more connected and consumer-driven, which clouds comparisons.

Here’s our quick take:

  • Until vaccines are found, it could be a six-month period to transition back to normal, but there is reason to be optimistic. Cooperation across the global health community appears high. It’s less about saving face and more about preserving lives.
  • It’s clear to us that the global economy will take a hit in the short term. China is the world’s second largest economy and was largely shut down at one point. Global companies already report disrupted supply chains and spending.
  • The wildcard is how well the global health community executes over the next six months of uncertainty. Until the virus is better understood, fear may grip decisions and behavior. We believe the US and world economy is improving, but lingering disruption could change that.

Regarding investment strategy, we treat the virus the same as we treat tensions in the Middle East, challenges in trade negotiations with China, or predictions about Presidential elections: they each embody the uncertainty that’s inevitable in investing. They are important but cannot be predicted as to timing and duration.

We therefore do not recommend reacting to the new coronavirus if you have properly set your goals, time horizon, and risk profile. The principles of diversification and rebalancing strive to keep your portfolio aligned with your near-term demands and long-term goals. In the short term, markets move quickly and yet behave just as emotionally as people do; reacting to fearful headlines usually takes people off plan, to the detriment of long-term investment success.

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