Timely and Relevant News: How is the Coronavirus Scare Different than 2008?
As we continue to monitor the spread of the coronavirus, we recognize that some of our clients may be negatively impacted by this disease. The greatest concern is for those whose health has been compromised, and for those who have lost loved ones. Our thoughts and prayers continue to be with those around the world who have suffered loss.
Meanwhile, on Wall Street, the drama continues to unfold. The stock market rally on Tuesday was a welcome sight to investors, but not enough to keep many people from scanning the horizon for a possible recession. For those who were negatively impacted by the Great Recession of 2008, it is natural to try and avoid being caught off guard by a similar situation. As President and CEO of Covenant Wealth Strategies, Ward Keever is often quoted saying, "It is not the bus that you see coming that hits you."
How is what we are experiencing different than 2008?
Two words -cash flow. Back in 2008, US banks had negative balance sheets and could not provide proper liquidity. Right now, the strongest companies in investor's portfolios have plenty of liquidity and are using their cash reserves to take advantage of declining stock prices, for example, through stock buy backs or strategic acquisitions. According to Yahoo finance, "Right now, the impact of the coronavirus is merely causing a short-term earnings recession due to the disrupted supply chains and hampered global demand."
Additionally, Wealth Advisor and Investment Committee Member Randy Eveland stated that "While one’s first reaction might be to look back at the most recent recession (2008-2009) and see a long road to recovery, the current market unrest is expected to result in a much quicker recovery once the outbreak is brought back under control and normal economic activity resumes."
Why is the market responding so negatively?
Stability is the market's best friend. Uncertainty is its worst enemy. Even though the markets have weathered the flu season year after year, it has never been through this one. Since investors aren't able to predict exactly how the coronavirus will play out, fear wins the day and the stock market suffers.
All the pieces of the puzzle haven't yet shown up on the table. For example, elected and appointed officials (aka policy makers) in Washington, D.C. have yet to show their hand. This causes additional uncertainty, and creates upside volatility on Wall Street.
Where is the silver-lining?
In these situations, there are often winners and losers. This time the silver lining is definitely on the side of consumers. The rate cuts by the Fed are a huge upside for consumers and businesses that are looking to take out mortgages or other loans and/or refinance existing liabilities. Decreased oil prices may be a negative for the oil producers, but it is a big win for consumers lining up at the gas pump. Additionally, bulk warehouses are struggling to keep certain items on the shelf, and that is not a supply chain problem, but an increase in consumer demand.
The Main Takeaway
Repetition is truly the mother of all learning and for that we reason, we will say it again. We continue to encourage our clients to keep their long term goals in mind. If you have any needs in the next 12 to 24 months we encourage you to keep cash resources available. For those of you with surplus cash, this may be an opportunity for you to discuss with your financial advisor.
If you have specific questions or would like to discuss your own investment strategy or financial planning needs, we welcome you to call us at 302.234.5655 or email us at email@example.com to set up time to discuss further.