Efficient market theorists are the economists who believe that every investor is rational and that every company’s true value is reflected in the last price paid for a share of stock. These economists would tell you that United States companies were worth 12-13% less on Monday, March 16, than they were on Friday, March 13. The majority of other investors recognize that we are caught in the grip of emotional selling and buying, and it’s hard to see the end in sight.
The emotional selling we saw on Monday was bleak to say the least. The Dow Jones Industrial Average (DJIA) fell 12.94%, which compares with the worst day during the 1929 stock market crash, when the markets fell 12.82%. We also haven’t seen the first–quarter earnings reports, which will give us an idea of how self-quarantines, social distancing, shuttered restaurants, and cancelled flight reservations are affecting companies’ bottom lines. And today (March 17) hasn’t looked any better, as the DJIA closed below 20,000.
In the past, whenever the Federal Reserve has lowered its rates to zero and promised to buy assets in order to shore up prices (which is what we saw on Monday), markets respond positively. However, it appears that Wall Street saw the Fed’s response as more of a panic attack than a policy measure and decided to sell at almost any price.
Understanding the Coronavirus Growth Rate
As I have said in the past, it is nearly impossible to predict what the markets will do or how they will perform — and in times like these, that feat is even more difficult. But since the Coronavirus pandemic is a primary driver behind the market’s spiral, it may help to understand a little bit more about the virus and its growth rate in order to visualize how it’s impacting the markets.
On his website, “The Tech Blog,” Peter Diamandis, chairperson of Singularity University, suggests that mortality rates for the virus may be significantly lower than what we are hearing. He attributes this to the fact that many patients contract mild cases of the COVID-19 virus or may be asymptomatic altogether. Diamandis claims that many countries have not counted these individuals among the reported cases. In China, the death rate for COVID-19 is reported to be 3.9%. But in South Korea, where any citizen can receive drive-through testing, the death rate is reported to be just 0.7%.
To help model the growth of the disease in the United States, Diamandis posted this graph, developed by The Washington Post, which notes that the exponential growth of victims can rapidly include an entire population.
Let’s say there were 100 infected people carrying the disease today, and the doubling rate was four days (meaning there would be 200 infectious victims four days later, and 400 four days after that) — in less than three months, there could be as many as 100 million people infected. If you assume a 1% mortality rate under this worst-case scenario estimate, then 1.1 million Americans would die of the disease — a figure which emphasizes the importance of participating in social distancing, following the CDC and WHO guidelines, and protecting yourself and your family as much as possible. We will get through this together by listening to the experts and taking each day in stride.
Recently, it seemed like there was some positive news about the virus coming from the Associated Press, which reported that Chinese researchers have shared COVID-19’s genetic sequence. Forty–five volunteers in Seattle are in the process of testing a vaccine, though this trial is meant to assess the safety of the RNA-based vaccine. Experts say that full validation of the vaccine’s effectiveness (which means the public will have access to it) is expected to be 12 to 18 months away.
Practice Self-Discipline and Awareness
Meanwhile, we will stay focused, disciplined, and calm as we watch how the markets will fare for the rest of this week. How will Wall Street react to the continued COVID-19 panic? Will the “fire sale” continue, or will the sentiment swing back to a buying mentality? We don’t know what the future holds, but we do know one thing: market volatility is a natural part of investing; it’s why you have a carefully diversified portfolio that reflects your risk tolerance. The markets will keep going, COVID-19 or not — we must stay the course long enough to see the reward for our discipline.
I encourage you to check out my latest blog post, which describes a stress test you can perform on your portfolio during periods of high volatility, as well as three important investment principles to remember.
In the meantime, we send you our best wishes for good health, safety, and peace of mind. And remember: Stay Diversified, Stay YOUR Course!