With the situation that is currently rockin’ the world; the coronavirus and its impact on the stock market, I want to follow up on our last blog from January 29.
So as for the coronavirus and the impact on the Stock Market in recent days, it is important to put things into perspective. Not to diminish the severity of those who have been directly affected by the viral outbreak, we need to understand that so far the mortality rate of the coronavirus has been statistically less of a threat than most of the past viral outbreaks even our own common flu within the US. See chart below which consists of research I pulled from the CDC.
As far as the impact to the United States: for SARS, Avian, MERS, there were 0 US Cases. For Ebola there were only 11 cases, of 7 which originated from outside the US and only 2 fatalities. Zika inflicted 4,115 cases, with only 139 borne inside the US and no fatalities. As of 2/25/20 there were only 53 cases of coronavirus in the USA, 39 of which came from outside of the US and no fatalities.
Now look at the chart below which consists of CDC data regarding our own common Influenza outbreaks in the USA.
You can see that there were 61,000 deaths out of 810,000 hospitalizations as a result of complications of the flu. That is a 7.5% mortality rate for those hospitalized. True, the percentage is much smaller if you used total number of illnesses. However, at this point it seems to me that our own common flu is much more of a threat than the coronavirus.
So why is there so much fear? I think this excerpt from an article which appeared in Psychology Today sums it all up:
“If It Bleeds, It Leads: Understanding Fear-Based Media”
Deborah Serani, Psy.D. – Psychology Today June 7, 2011
Fear-based news stories prey on the anxieties we all have and then hold us hostage. Being glued to the television, reading the paper, or surfing the Internet increases ratings and market shares — but it also raises the probability of depression relapse.
News programming uses a hierarchy of if it bleeds, it leads. Fear-based news programming has two aims. The first is to grab the viewer’s attention. In the news media, this is called the teaser. The second aim is to persuade the viewer that the solution for reducing the identified fear will be in the news story. If a teaser asks, “What’s in your tap water that YOU need to know about?” a viewer will likely tune in to get the up-to-date information to ensure safety.
So how does this apply to the coronavirus? Let’s take a look at some recent headlines:
- Global stock markets plunge on coronavirus fears – BBC News 2/24/20
- Stocks Plunge After U.S. Confirms Second Case Of Coronavirus – Forbes 01/24/2020
- Apple’s coronavirus warning just shaved $34 billion off its stock market Value – CNN Business 2/18/20
- US STOCKS- Wall Street sell-off deepens as virus spread sends investors fleeing – Reuters 2/25/20
With headlines like those above, it’s no wonder investors are bailing out of the market in droves. Now there are many reasons the markets are affected by the coronavirus, such as slowdowns in business due to quarantines and the impact to international trade. But it is mainly the fear of the coronavirus, stemming from the inability of the medical community to get a handle on its unknowns at this time, which is accelerating this trepidation. And the reaction of investors to the headlines is exacerbated because of this. That said, we need to put this in perspective. The chart below represents market reactions during viral emergencies.
As for the Coronavirus, as of 01/01/20 the S&P 500 is down around 22.55%, the Dow Jones Industrials is down around 26.61% and the Russell 2,000 (US Small Stocks),is down 35.75%. You would think we are in an Armageddon where it comes to the Stock Market. That is because the media is causing hysteria with using headlines with big numbers like “Dow Suffers 3,239 Point Drop this Week” or “Dow Plunges 1,100, Worst One Day Point Drop in History!”
Putting that into perspective, at the time it dropped 1,100 points it was a 4.5% downturn for the day. So, let’s take some snapshots in history of when the Dow lost 4.5% or greater in one day.
- 09-29-2008 – Dow Down 777 pts for a 6.98% drop. Dow then was around 10,365
- 08-08-2011 – Dow Down 634 pts for a 5.55% drop. Dow then was around 10,810
And there are many more examples. The statistics are easy to find.
You see, although the above numbers were not the “worst point drop in all history,” as a percentage the point drop was much more damaging to the Dow than yesterday’s 1,100-point drop. Yet the media focuses on the drama of the large number of points to draw investors into panic because an 1,100-point drop sounds much worse that a 4.5% drop. And the media does this to keep investors glued to their TV stations or publications. (Actually, for each of the cases above, they were the “worst point drops in history” for those two specific dates).
Take a look at our previous Blog… “IN LIGHT OF THE CORONAVIRUS OUTBREAK… IT’S A GOOD TIME TO LOOK BACK ON HOW THE STOCK MARKET HAS PERFORMED DURING PAST VIRAL OUTBREAKS” you will see that immediately after the market’s downturn during all of the past viral outbreaks, the market recovered significantly and then some within in six months to a year. In fact, most market corrections, and yes, that is where we are in at the moment, take approximately 111 trading days, or just short of four months to get back to the all-time highs. So that said, there is no reason to panic.
This is a great time to rebalance your portfolios to take advantage of the sales in the market. You should look at any short-term fixed income positions inside your portfolios, (which should be slightly up at this time) and consider selling some of that to buy more equites. Because there is no doubt there will be a recovery at some point in the future. And you want to be in it owning more equities!
Most seasoned investors will hold their ground and take advantage of the novice investors who may panic and retreat from the market. Seasoned investors will look to buy in because right now the market is on sale at 20-25% off. My job as an Investor Coach is to keep spreading the seasoning over all our clients. I am proud to say our coaching has been effective. This week we have already received several calls from clients looking to buy into the market and zero calls from any clients in panic mode wanting to sell.
So my coaching message for today is simply this: don’t panic. Remember the days of being on the Cyclone at Coney Island? It was a wild ride but we all managed to get off in one piece. I assure you that this, too, will pass!
Robert Stabile owns Higbie Advisory, LLC a Registered Investment Advisory located in Melville, Long Island. He has over 30 years’ experience in personal risk management and has spent the last eight years as an investor coach dedicated to helping clients understand their true purpose for money, understand what Wall Street costs them and delivering Nobel Prize Investment. Strategies that meet the Prudent Man’s Rule of Investing. Higbie Advisory, LLC is partnered with Matson Money, an ERISA 3(38) fiduciary. Robert Stabile’s articles have appeared in such well-respected publications as “Small Business Today Magazine,” “Long Island Business News,” Providence Business News, and others. He can be reached at firstname.lastname@example.org. Look for Robert’s new book “Investing – Without the Bull” coming out this spring.