Coronavirus: Weathering the storm

Written by: Global Thought Leadership | February 28, 2020

Chart inspired from ClearBridge Investments. Source: Bloomberg, as 0f 2/28/20. U.S. stocks represented by the S&P 500 and International stocks represented by MSCI ACWI Ex-USA Index. Indexed to 100 as of January 11, 2020. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The Bottom Line

Updated as of 2/28/2020:

  • Global equity markets turned sharply lower on news of growing coronavirus outbreaks outside of China.
  • U.S. stocks experienced an 11.5% drop between 2/24 and 2/28—the biggest 5-day decline since August 2011—and international stocks sank 9% over the same five days.1
  • The week’s losses brought an abrupt end to the February march by U.S. stocks to an all-time high on the 19th.
  • Since the first reported death from the virus on Jan. 11, U.S. stocks have retreated by 9.5% and international stocks have dropped a total of 11.1% (through Feb. 28th).2
  • Beyond the obvious human costs, the implications for economic growth and financial markets could be significant if the situation develops into a full-fledged pandemic.
  • The question, of course, is at what point panic selling could generate buying opportunities for attentive investors.
  • To evaluate that, investors are considering what happened during the past SARS and MERS disease outbreaks that occurred in 2003 and 2012, respectively.
  • There’s also the potential for economic stimulus from central banks and governments to support growth and financial markets should the virus continues to spread.
  • That could underpin a rebound in stocks already hit hardest—including cyclical value stocks and economically sensitive growth equities, especially in China, Europe, Japan and emerging markets.

 


Footnotes:

1 Source: Bloomberg, as of 2/28/20. The last time the S&P experienced a larger 5-day drop was a 13.01% decline between for the five trading days ending 8/11/2011. U.S stocks are represented by the S&P 500 and international stocks are represented by MSCI ACWI Ex-USA Index

2 Source: Bloomberg, as of 2/28/2020.

Definitions:

A cyclical stock refers to an equity security whose price is affected by macroeconomic, systematic changes in the overall economy. Cyclical stocks are known for following the cycles of an economy through expansion, peak, recession, and recovery.

Emerging markets (EM) are nations with social or business activity in the process of rapid growth and industrialization. These nations are sometimes also referred to as developing or less developed countries.

Growth stock refers to the stock of a company whose earnings are expected to grow at an above-average rate relative to the market.

Middle East Respiratory Syndrome (MERS) is viral respiratory illness that is new to humans. It was first reported in Saudi Arabia in 2012 and has since spread to several other countries, including the United States

The MSCI ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 24 Emerging Markets (EM) countries

Severe acute respiratory syndrome (SARS) is a viral respiratory illness caused by a coronavirus called SARS-associated coronavirus (SARS-CoV). SARS was first reported in Asia in February 2003. The illness spread to more than two dozen countries in North America, South America, Europe, and Asia before the SARS global outbreak of 2003 was contained.

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S.

Value stock refers to the stock of a company that is believed to trade at a lower price relative to its fundamentals (i.e. dividends, earnings, sales, etc.).

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