Fears that the deadly coronavirus would spread further around the globe intensified Monday and led to the biggest one-day drop in the S&P 500 Index since October 8, 2019. In fact, it was the first time the index moved 1% in either direction since early October—spanning 71 trading days. Not only that, but the index’s streak of 30 consecutive days without back-to-back declines, tying the longest such streak in over 60 years as shown in the LPL Chart of the Day, came to an end. Stocks had been eerily calm.

We know from history these calm periods haven’t lasted very long. We were due for some volatility with stocks up about 15% in less than four months and valuations elevated. But a catalyst for a sell-off wasn’t obvious after the U.S.-China phase-one trade deal was signed on January 15. Economic data has been better globally, central banks remain supportive, and the major escalation in the U.S.-Iran conflict had minimal market impact. Then the coronavirus outbreak happened.

“The coronavirus outbreak brings uncertainty to markets, and investors are understandably nervous,” said LPL Financial Chief Investment Strategist John Lynch. “While economic activity in China is being impacted, particularly travel-related businesses, we expect limited U.S. economic impact as with SARS in 2002–2003, bird flu in 2006, and Zika in 2016.”

More than 100 deaths have been confirmed out of more than 4,500 cases of the coronavirus. Initial reports suggest this virus may be less deadly than SARS, which led to 774 deaths with more than four times the mortality rate as corona. Our hope at this point is that the current outbreak will be better contained and less deadly than SARS.

We certainly don’t want to minimize human losses, however, our job is to provide you information on the potential impact to the markets. History tells us that the economic and market impact after potentially similar events tended to be modest and short-lived. The SARS outbreak started in November 2002, global equities bottomed in March 2003, and the outbreak was fully contained by July 2003—several months into the 2003–2007 bull market. The temporary loss of global output was quickly recovered in the third quarter of 2003.

So while this situation is fluid and unnerving, we would advise suitable investors to stick with their long-term investing plans where appropriate and focus on generally supportive fundamentals of the economy, interest rates, and corporate profits.

For more of our investment insights, check out our Outlook 2020: Bringing Markets Into Focus.

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. The economic forecasts set forth in this material may not develop as predicted.

Please read the full Outlook 2020: Bringing Markets Into Focus publication for additional description and disclosure.

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