When we were thinking about this memo after the market close last Friday, we thought the discussion would be about earnings and interest rates along with an update about the coronavirus. With developments over the weekend however, it is “all about” the coronavirus. The stock market opened notably lower this morning, with all the major indices down around 3% currently, as the number of coronavirus cases outside of China has spiked.
With the virus now spreading in a more material way, notably in South Korea and Italy – worries over a prolonged economic slowdown are “front and center” for the financial markets. In addition to the US market, global stock markets are moving lower as well. What is moving higher is bonds and gold, as investors flock to these traditional safe haven assets. The 10-year Treasury yield is at its lowest level since 2016, while the 30-year Treasury yield hit an all-time record low (remember yields move inversely to prices, prices up yields down). Gold is trading at a 7-year high, up around 2% currently. Amidst all of this, investors are starting to “sniff-out” an interest rate cut by the Federal Reserve. According to the CME Group FedWatch Tool, there is currently a 45% chance for a rate cut in April.
We don’t have a crystal ball, and we certainly cannot tell you what is going to happen with the coronavirus. However, we are long-term investors with a long-term view. Having an asset allocation that meets your goals/objectives and cash flow needs is a solid foundation. The market has been through many ups and downs in the past, this is not the first problem the market has ever encountered and it won’t be the last. Market volatility, corrections, and even bear markets are inherent in the stock market. While drops like this can be unsettling, it is important not to let short-term events and market movements interfere with your long-term plan!
As always, don’t hesitate to reach out to us with any questions or if you would like to set up a meeting.
All the best – Southport Station Financial Management, LLC