Our View on the Coronavirus

March 2, 2020


Our View on the Coronavirus


Dear Clients,


As I write this letter at market close, the DJIA is up 1300 points (5.09%) to 26,703 and the S&P 500 is up 136 points (4.60%) to 3,090.  Last week, concerns about the spread of the Coronavirus and its impact on the global economy caused the S&P 500 to decline 11.4% and the yield on the 10-yr. U.S. Treasury Note to fall to an all-time historic low of 1.13%.  For the year, the S&P 500 is down 4.4%.


Continued concerns about the Coronavirus, and specifically, the spread into the United States, will likely be the primary focus of the equity markets for the short-term.  Nobody knows with certainty how far the virus will spread geographically or for how long and how significantly it will affect global economic activity.  While the virus seems to be running its course in China as the pace of new infections has slowed, today’s Coronavirus update from the World Health Organization indicates there are now 89,250 cases, including 91 in the United States.  Six deaths have been reported in the U.S., all in Washington state.


On the U.S. economic front, February’s economic reports continued to confirm expected future growth:  the Index of Leading Economic Indicators showed an 0.8% rise month-over-month (“m/m”); in the Housing report Building Permits jumped 9.2% m/m; Core Capital Goods orders surprisingly rose 1.1% m/m; and lastly, Retail Sales rose a solid 0.3% m/m.1  Looking forward, the Coronavirus will undoubtedly negatively impact near-term corporate profits.  In the last week or so, several large U.S. companies have already warned that 1Q 2020 earnings will be less than previously expected.  The big unknown is the duration of the impact.  Will economic activity be impacted only in the 1Q 2020, or perhaps the first half 2020, or longer?  Overall, based on what we know today, we believe it is probable the impact is short-term


We do not believe the economic disruption from the Coronavirus is going to push the U.S. economy into a recession.  Chairman Powell of the Federal Reserve Board has already stated the Federal Reserve Bank would act “as appropriate” to support the economy.  Likewise, President Lagarde of the European Central Bank and Bank of Japan Governor Kuroda have stated monetary policy makers in those regions stand ready to take appropriate measures as necessary.  With interest rates at very low levels and expectations for world central banks to maintain accommodative monetary policy, this is not the time to shift away from equities. Therefore, we are maintaining tactical asset allocations to U.S. and international equities in client portfolios.    



Terry W. Miller

Terry W. Miller, CFA®
Chief Investment Officer


terry.miller@millerwmg.com | http://www.millerwmg.net


Footnote 1 -  Economic data obtained from Charles Schwab & Company.  The Schwab Center for Financial Research ("SCFR"), a division of Charles Schwab & Company, sources information from third-party providers and is believed to be reliable, but its accuracy or completeness is not guaranteed.