It became very clear this week that Coronavirus was having a major impact worldwide.  The spread of the virus caused many countries to quarantine large groups of their population. The biggest impact has been in China, where millions of people have been quarantined. With fewer workers available and transportation greatly reduced, the economy of China and other Asian countries has taken a serious reduction. Since much of the Asian shipping is handled either directly or indirectly by China, the slow down in China has resulted in a disruption of the worldwide supply chain. This is impacting the U.S., where many companies rely on supplies from Asia to manufacture their products or sell the finished goods. Although only 11% of the U.S. GDP comes from manufacturing, the disruption of supply chains is being felt. The bigger concern is the longer-term impact for growth in the U.S. and worldwide. U.S. companies are already lowering earnings estimates for 2020 based on what is taking place.

With this as a backdrop, there is little wonder that the U.S. stock market has seen a drop in value. While stocks have gone down this week, U.S. Treasuries and high-quality corporate bonds rose in value. It is still too early to determine if what we are seeing is a stock market correction or the beginning of a bear market. Given the number of lives lost in the U.S. annually to flu vs. the reported deaths from coronavirus, it gives you pause to wonder if the economic response to Coronavirus will have a lasting economic impact? Many countries are already talking about ways to stimulate their economies to reduce the economic impact of the virus.

If you have a well-diversified portfolio of stocks and bonds, the impact of the recent downturn in stocks has had a much less significant impact on losses.  As usual, in investing you want to be diversified!

Ed Mallon

Posted Feburary 28, 2020