Ask The Rational Investor: Coronavirus and Your Portfolio

Over the last few weeks, Coronavirus fears have given stock market investors a wild ride, resulting in a quick 7-8% stock market sell-off in just the last five days! With almost 79,000* infections and over 2,300 deaths worldwide, consumers, businesses, and your neighbors are wondering if Coronavirus will become a global pandemic.

In periods of uncertainty, it is critical to remain calm and focus on facts.

From an investment perspective, there are two major concerns: will Coronavirus become a pandemic, and how will supply chain disruptions affect the global growth picture?

First, let’s take a look at Coronavirus (SARS-CoV-2) in the context of SARS, MERS, H1N1 and the seasonal flu in the US. Current cases of Coronavirus total nearly 79,000*, significantly more than SARS (8,096) and MERS (2,499), but much less than the seasonal flu which ranges from 29 to 41 million and over 60 million for H1N1 in the U.S.

While the cases of Coronavirus are multiples higher than SARS or MERS, the recently reported fatality rate has been trending around 3% compared to 10% for SARS and 34% for MERS.

On a relative basis, Coronavirus infects about 2.5 people for every one person already infected, compared to 3:1 for SARS and 1:1 for MERS. As a more extreme example, Smallpox infected almost 5 individuals for every person already infected and has a fatality rate of around 30%.

While data is changing daily, the most recent data points from China show the elderly population is most at risk; individuals over 80 have a fatality rate of 14.8%.

Depending on how prevalent Coronavirus becomes globally, some Wall Street strategists believe that the S&P 500 earnings growth could be close to 0% for 2020 with a sharp rebound in 2021. If Coronavirus is contained much more quickly, it is likely that the S&P 500’s 2020 earnings will still grow in the low single digits.

However, U.S. supply chains do rely heavily on China, with estimates placing just shy of 20% of domestic supply chains being sourced in China.

While Coronavirus has increased uncertainty around economic and earnings growth, your portfolio positioning should already incorporate the risk of slowdowns and recessions.

If you are near or already in retirement, a good rule-of-thumb is to look at your annual spending minus social security, pension payments, and any recurring income streams. Ask yourself how comfortable you would feel with 3, 5, 7 years of living expenses in safe assets (cash, savings, bonds) and divide that amount by your total portfolio. This amount is a good estimate of how much your portfolio should be in cash and fixed-income instruments.

Lastly, if you are worried about your asset allocation, we encourage you to reach out to your portfolio manager or financial advisor. Ask them about your mixture of assets and see if you still feel comfortable with your positioning for the long-term.

*As of February 23, 2020

Sources: Goldman Sachs, WHO, CDC

Beese Fulmer Private Wealth Management was founded in 1980 and is one of Stark County’s oldest and largest investment management firms. The company serves high-net-worth individuals, families, and non-profits, and has been ranked as one of the largest money managers in Northeast Ohio.