Will the Coronavirus Crash the Market?

Pundits all over the media think the coronavirus could crash the market.

On Friday, January 17th, after a spectacular 40% run-up that started the day after Christmas 2018, the Standard & Poor’s 500-Stock Index closed at 3,329.62.

Five weeks and one day later, Monday, February 24, the Index closed a little over three percent lower at 3,225.52.

I am always amused by the media’s use of the word “lost.”

We have been invited by financial media to suspect that the blended value of 500 of the largest, best financed, most profitable businesses in America and the world has permanently “lost” (which is what a loss is) three percent with more “losses” to come due to the outbreak in China of a new strain of coronavirus.

Permit me to doubt this, and to suggest that you, as a goal-focused long-term wealth builder, join me in doubting it.

I do not claim to have any idea how far this outbreak will spread, nor how many lives it will claim, before it is brought under control.

I’m reasonably certain that many (or perhaps most) of the world’s leading virologists and epidemiologists are working on it, and I believe that their efforts will ultimately succeed.

Clearly, this is nothing more than my personal opinion.  But if the rich history of similar outbreaks in this century is any guide, this would seem to be a reasonable hypothesis.

I draw your attention to. . .

• SARS in 2003-04, also originating in China
• The bird flu epidemic in 2005-2006
• In 2009, a new strain of swine flu
• The Ebola outbreak in the autumn of 2014
• The mosquito-borne Zika virus outbreak in 2016-17

Without belaboring the point: the super-spreader of SARS – a fish seller – checked into a hospital in Guangzhou on January 31, 2003, basically infecting the whole staff.

The epidemic exploded from there.

On that first day of the litany of epidemics cited above, the S&P 500 closed at 855.70.

Seventeen years and six epidemics later to date the Index closed over three times higher.

I’m confident that you see where I’m going with this.

• Corrections are quite common
• No one can forecast them much less time them
• They are irrelevant to your long term goals

Daily declines have always been a part of the long-term up in the S&P 500 even when the daily declines pile up in nasty three year segments like 2000-2002 or a one year segment like 2008.

Your stock portfolio is not an index that just goes up or down every day.

It is a portfolio of companies with earnings.

The 2019 earnings of the S&P 500 has risen to $162.35 from $83.77 in 2010 almost doubling in ten years.  The 2019 cash dividend has more than doubled in ten years from $22.65 in 2010 to $58.80.

No virus or market correction in the past has slowed these earnings down.

Do you really think any will in the future?