PUTTING COVID-19 INTO PERSPECTIVE
The short answer is to demonstrate the spiritual fruit of patience, but please read on as to why.
At the start of this year, not many people outside the infectious disease community had heard of the coronavirus (Covid-19). Now, in late March, we cannot stop hearing about it, and the world continues to grow concerned about the impact of the global pandemic and the cost of human lives. At Servant Solutions, our thoughts and prayers are first and foremost with those families and individuals that are dealing with the suffering and loss of loved ones caused by this outbreak. Our Lord and Savior sees them all.
Only after we are lifting up those who are hurting with prayer and ensuring we are being the hands and feet of Christ to an anxious world, can we start to think about what is happening in the financial markets. How have they reacted to other pandemics? Over the past two decades, the markets have experienced roughly seven different viral outbreaks, and the market has been able to recover from all of them. We do not pretend to know what will happen with this current outbreak, nor are we able to answer your questions as to where the ‘bottom’ is, when the market may recover, and what you should do with your investments. However, we can look to history for some answers.
At the present time, COVID-19 seems to be more widespread than all the previous viral outbreaks, but we also know that slowing the virus is possible. Given that China was the first nation to take swift action to curb the impact of the virus, we can use them as a proxy for what we might experience in the U.S. If we look at the stock market in China as a gauge for the future, we will see that it has stabilized relative to other markets and is down about 14.6% as compared to US equities of 23.6%, Japan equities of 19.2%, and European equities of 23.9% (Feb 19th through March 31st). Assuming America follows the same recovery path of COVID-19 as China (i.e. our population is not more adversely affected), we should see the same stabilization of the markets.
After the markets stabilize, we should expect the effects of the coronavirus to be felt in the financial markets for quite some time, particularly on the service sector as compared to the manufacturing sector. But the uncertainty of the virus’s impact will begin to dissipate, leading to more confidence in the markets. This should translate into a bottoming effect for stocks and bonds as it relates to COVID-19. Additionally, consumers, which are the driving force of our economy, will be supported with low interest rates, low gas prices, an active monetary policy, and an active fiscal policy. All of these factors would suggest that resilient investors, who can demonstrate the spiritual fruit of patience, should be rewarded over the coming years. Below is a recap of almost 70 years of previous market downturns.
Dr. Brock Vaughters, Professor of Finance and Director of Undergraduate Studies for the Falls School of Business, is an alum of Anderson University and brings with him over a decade of practical business experience. Dr Vaughters serves as a Trustee of the Board of Servant Solutions. He currently serves as Chair of the Investment Committee. He and his wife Angie (also an AU grad ‘03) have a daughter Mia and a son Drake and reside in the Indianapolis area.