The market’s reaction to the spread of the virus is worse than I expected. The S&P 500 plunged 7% on Monday, in addition to large loses on last Friday and Thursday. It is now 18% off the highs. At once point overnight on Monday it was down 20%. The last time it fell this much percentage-wise was in late 2018 and the summer of 2011. This is this not exactly a common occurrence and represents a good buying opportunity, of course until it doesn’t. But I am confident it will come back quickly when all this panic and hype settles, but it may take awhile. This panic has taken on a life of its own and will possibly get worse before it gets better. There are going to be more deaths. Every new case and death in certain US cities will get blanket media coverage, compounding the fear and irrationality. This has become an event and spectacle.
But when the fear subsides, the recovery will be sudden, huge, and unexpected. That is how it has played in the past in 2011 and 2018. That is why I am not selling. I don’t pay that much attention to daily market gyrations. My main focus is on building long-term strategies and asset-allocation systems, not day-trading or timing. The fed is cutting rates and the Trump administration is likely going pass massive stimulus with bipartisan support in an attempt to prevent the market and economy from faltering, especially given that we’re in an election cycle. This also means that when this is over, the the stimulus and low rates will still be in place, providing an additional economic tailwind that may last years after the virus is over. The fed is not going to abruptly raise rates after the virus passes, but similar to 2015-2017 will raise them very gradually.
The coronavirus panic is dumb
— Elon Musk (@elonmusk) March 6, 2020
I agree with Elon that panic is dumb. Such panic has become a self-fulfilling prophecy in which the virus creates its own crisis, aided by the media. Consider a hypothetical world in which the virus is never reported. Given that most cases are mild and indistinguishable from the flu, It would likely just be dismissed as an usually bad flu season, with Iran, Italy, China, Korea, and the elderly hit especially hard. And this is assuming it kills enough people, given that the flu kills from 300-650k people globally annually, yet the corona virus has only killed 4,000, so it has a long way to go before it has any meaningful impact on overall flu stats. But now that it has a name and classification and is being constantly tracked and monitored, suddenly everyone has become acutely aware of it. A corona death is treated like 10000x flu deaths in the eyes of the media, when a death is just a death. There hundreds of strains of influenza, although they are lumped into types A though D. If each was tracked and monitored as intensely as the corona virus is, everyone would probably be panicking over those too.