The coronavirus has spread rapidly since emerging in Wuhan in December. So far its spread outside China has been limited, but appears to be spreading with new cases being reported every day. Investors have reacted fast – selling off equities with China ETFs down >11%; Airline stocks off 7%; Crude oil down 13%. The market selloff has wiped out all gains year to date, putting the Dow Jones and S&P 500 in the red – down 1% and 0.2% respectively.

The question is – Will it get worse? A look back at precedents help. SARS in 2003 was mainly a China threat, reflected in a big hit to Hong Kong stocks but not much impact on assets in the rest of the world. Hong Kong stocks bottomed out but then things rapidly returned to normal. With the S&P 500 at peak valuations since 2002, just before the corona virus outbreak – the elephant in the room is consumer confidence. The U.S. economy has been reliant on confident consumers for the past year. If consumer confidence drops, that could begin a round of panic selling.

Future Wealth’s View

Our view, at Future Wealth, is that the effects of the virus will be short lived, and can be mostly ignored. We have always cared much more about the long-term prospects for our clients, But, that said, we expect there is going to be lots of profit warnings blaming the infection. Some from companies that have been hit hard – travel and tourism, oil  and gas etc.. Other profit warnings could come from those who were already struggling but needed an excuse.

The key is to have a portfolio that can withstand volatility in the face of unpredictable events like the coronavirus. Despite the S&P and Dow being down for the year, portfolios of every single one of our clients are in the green year to date. This is how Future Wealth LLC earns its keep.