Covid-19 and the markets image

COVID-19 and its impact on the markets

Published: February 28, 2020

Recent news on COVID-19 (also called the “Coronavirus”) has had an impact on markets globally over the last few days. Based on its rapid spread and appearance in a number of countries, it appears increasingly likely that the virus will be more widespread than initially thought. As of this email, U.S. markets are down 12% at the close of the markets on February 27 from its recent high, leaving many investors wondering whether there is more downside ahead.    

The track of COVID-19
Beginning in January and continuing into early February, the news surrounding COVID-19 was confined to China, where it began to impact the already weak Chinese economy and markets. Initially the rate of spread appeared “normal” and seemed to be contained to China. In recent weeks, however, the spread to other countries on most continents and the accelerated rate of growth in cases have led to increased concern regarding the global economy and risk that it could be the tipping point of economic recession and bear markets.  

The good and the not-so-great news
The good news is that mortality associated with the coronavirus seems to have stabilized at a much lower rate than that of other recent widespread viral outbreaks, such as SARS or Ebola. In addition, it appears that cases in China are on the wane and everyday life, to some extent, is resuming. The not-so-great news is that, because its symptoms are not as severe as those of SARS or Ebola, andꟷin some casesꟷcarriers have been asymptomatic, COVID-19 is much easier to spread, increasing the risk of transmission.

What lies ahead?
At this point, it is unclear what will happen. We do expect continued market uncertainty and volatility, which are, in fact, a “healthy” response to events. We have seen a flight to quality, i.e., U.S. Treasuries, resulting in declining rates, which we anticipate will maintain or potentially result in a further drop in rates. We are actively monitoring international markets, particularly those in smaller, less diversified and developing economies. 

Investing for the long term
Klingenstein Fields Advisors (KF Advisors) believes in a long-term strategic outlook to investing, and we construct portfolios designed to endure through market cycles. We are vigilant and monitor both macro and micro factors and indicators to assess how national and global events may affect your investment strategy. We focus on asset allocation, looking carefully at performance attribution and the selection of individual securities and managers as key components to managing risk. Depending on the environment, we may also employ specialized hedging and options strategies, weighing the cost versus the benefits. Your customized asset allocation and investment strategy incorporate your situation, risk characteristics and goals for your assets. In times of greater volatility, we may make short-term tactical moves to take advantage of attractive buying opportunities or mitigate potential risk.

Important Disclosures

This material is provided for informational or educational purposes only and should not be construed as investment, accounting, tax or legal advice. Always consult a financial, tax and/or legal professional regarding your specific situation. This communication is not intended as a recommendation or as investment advice of any kind. It is not provided in a fiduciary capacity and may not be relied upon for or in connection with the making of investment decisions. Nothing herein constitutes or should be construed as an offering of advisory services or an offer to sell or a solicitation to buy any securities or a recommendation to invest in any specific investment strategy. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future returns. The views expressed herein are as of a particular point in time and are subject to change without notice. The information and opinions presented herein are general in nature and have been obtained from, or are based on, sources believed by Klingenstein Fields Advisors (“KF Advisors’) to be reliable, but KF Advisors makes no representation as to their accuracy or completeness. Although the information provided is carefully reviewed, KF Advisors cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided. KF Advisors represents two investment advisers registered with the Securities and Exchange Commission: Klingenstein, Fields & Co., L.P. and KF Group, LP. If you are a KF Advisors client, please remember that it remains your responsibility to advise KF Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.