Market panic stemming from the spread of the coronavirus (COVID-19) around the world has already sent U.S. stocks into freefall this week.
As expected, concern about a potential “pandemic” is making the rounds in the media. According to World Health Organization (WHO) Director General Tedros Adhanom Ghebreyesus, “The number of new cases reported outside China exceeded the number of new cases in China for the first time.”
But the WHO Director cautioned against using the term “pandemic”:
He called for people to refrain from using the word ‘pandemic.’ An ‘epidemic’ is when a disease spreads through one or several communities; a pandemic occurs when a disease spreads throughout the world
The WHO Director’s conclusion that this is not yet a “pandemic” is positive news, of course. But the cases reported outside of China also include the 60 or so inside the United States. That’s where the economic impacts from COVID-19 could start to form roots.
The spread of the coronavirus paired with the trade war, rising consumer debt, increasing inflation, and a confused Fed could cause U.S. markets to remain “wobbly” for quite some time.
“Correction Territory” Could Be the Near-Term Norm
On February 27, the Dow Jones flirted with “correction territory” several times as the market appeared to be on “pins and needles” at every mention of the virus. It finally succumbed, down more than 10% from record highs at close of trading.
The day also marked the largest one-day point drop in the history of the Dow.
Sadly, this could be the norm in the near-term. The AP provided one possible explanation for the beginning of this new crisis:
The global economy was just stabilizing after wobbles caused by the trade war between the U.S. and China and fears of a disorderly British exit from the European Union. The coronavirus hit just as a U.S.-China preliminary deal and a Brexit withdrawal divorce agreement had boosted hopes for a modest upswing, particularly in Europe.
And Investor’s Business Daily hinted at a certain characteristic of COVID-19 that could make Q2 2020 “panic central” in the U.S. markets:
The coronavirus risks becoming a much longer and deeper threat to the global economy. Goldman Sachs says that the coronavirus impact on supply chains will be “nonlinear” if current trends continue. In other words, the impact will suddenly get worse in the second quarter as inventories run out.
At CNBC, more short-term concern was noted: “We’re extremely cautious in the short term,” said Tom Hainlin, global investment strategist at Ascent Private Capital Management.
Hainlin added, “No one really seems to be an expert on the coronavirus. We haven’t seen anything like this really in our investing lifetimes.”
To be clear, this also means the markets could return to “business as usual” in the near future. Nobody knows for sure. That’s exactly where the economic uncertainty with the coronavirus stems from.
Of course, this isn’t the first time the U.S. markets have entered “correction territory” either, as seen in the CNBC bar graph below:
Bottom line, the U.S. may be adding another bar to the graph above, so it’s a good idea to think about preparing now.
Do Your Best to Ensure Your Portfolio Doesn’t “Correct”
Short of a miracle, the next few months are likely to be a bumpy ride for the average investor. So it’s important that you take steps now to make that ride as smooth as possible.
Examine your savings, and think about how to minimize your risk exposure. Then, consider assets that can help preserve some measure of stability for the months to come.
Precious metals like gold and silver could help prevent your savings from succumbing to a correction of its own.
Republished by permission of Birch Gold Group.
