The rising number of coronavirus cases and heightened media attention on the situation have contributed to an increase of stock and bond market volatility, introducing higher uncertainty to the short-term investment outlook.

Over the past twenty years, our team has found it critical to build portfolios with the right characteristics for the investor’s long-term objectives; then, when heightened volatility caused by Coronavirus, Brexit, housing defaults, or other crises affects the markets, discipline and measured responses are the most effective tools. We’ve guided investors effectively through the dot-com bubble, 9/11, the great financial crisis, the downgrade of the United States, the PIIGS, China’s shift from industrial production to services, and numerous political challenges. There have always been many reasons to sell or reduce risk and many times when investors have been penalized long-term for over-reacting to short-term events that appeared at the time to be catastrophic but proved to be temporal.

In an effort to understand the challenge at hand, all indications are that the Coronavirus will cause a drag on growth over the next 12 months. At this point, the largest drag likely will be experienced by China during the first quarter; however, there appears rising potential for other areas to experience a potential drag on growth as virus cases rise in Italy, South Korea, Japan, and other locations. 

Efforts to contain rising infections via quarantine and travel restrictions delays consumer spending and slows manufacturing activity. However, we anticipate some of the negative effects will reverse as manufacturing and consumer activity comes back online as quarantines lift. Currently, it appears that the pace of new cases of the Coronavirus has slowed in China and that China already has started to bring back capacity. If accurate, this activity would indicate that the disruption caused by the virus is shorter-term in nature, at least from the perspective of long-term investing. In addition, China has been employing both fiscal and monetary stimulus to stimulate growth and stabilize the economy. We would expect governments in other regions to similarly pivot to more accommodative policies to help offset the potential drag on growth the virus may cause. As with other recent epidemics such as MERS, SARS, and Ebola, Coronavirus introduces high uncertainty of progression and scope. The first three proved to be much less devastating than anticipated at the time; as such, there may be as much risk in radically changing investment strategy as in holding steady.

While the timing and outcome of the virus is still uncertain, we are monitoring the developments closely. We believe that remaining diversified across a broad range of regions, industries, and high-quality companies will provide the appropriate downside protection for long-term investors during this uncertain time. Though we recognize the tragedy at hand for families and friends of those stricken by Coronavirus and the fear such tragedy instills, we do not at this point see this crisis meaningfully impacting the long-term opportunity set of the investment markets.