Covid-19: Another – Known Uncertainty
March 3, 2020
While it is only the first week of March, only two months into 2020, it is likely that we can declare the most used word of the year – Covid-19 or Coronavirus. There is no form of media that isn’t dedicating major time and effort to report and speculate about where this virus is going and what impact it will have on our world. Arguably “information” about the virus is travelling at much greater velocity and volume than the virus itself.
One of the largest internet search engines on the planet, Google, provides statistical information respecting search interest for terms or topics over time. During the week commencing February 23, 2020 the term Coronavirus/Covid-19 had a search interest statistic of 100 out of 100. This compares to the peak search interest over the last 12 months of 12 for “Donald Trump”, 4 for “Brexit” and 1 for “China/U.S, trade war”. Concerns respecting Covid-19 are pervasive on a worldwide basis.
Not unlike the pandemics of Severe Acute Respiratory Syndrome (“SARs”), also a strain of Coronavirus (2002/2003), and the H1N1 Influenza (2009), many people worldwide can be expected to become ill and, unfortunately, some will succumb to their illness. As the world moves to contain the spread of the virus, the disruption of the movement of people and goods and associated economic impacts are inevitable.
Over the past week, concerns, not facts, about the economic impact of Covid-19 have had a separate viral impact on the equity markets. The S&P 500 entered into official correction territory in the last week of February with other major markets not far behind.
We have willfully avoided sharing any specific market data respecting market movements over the last week. As we write this article late in the day on Monday, March 2nd, we have seen a substantially positive day in North American equity markets. Like any other event garnering worldwide attention, concerns and sentiments will shift rapidly and materially. While we cannot predict what the markets will show us over the short term, we will continue to apply our disciplined approach to client portfolios (https://quadrantprivate.com/the-4-ds-of-portfolio-management/).
In our newsletter, Known Uncertainties (https://quadrantprivate.com/known-uncertainties/), released in the first week of February, we identified a number of known uncertainties that would impact economies and by association, the markets, in 2020. At the time, Covid-19 was in its early stages, being limited to the Hubei province of China and not even having a name. That said, the main point of the article remains instructive:
“From a portfolio management perspective, predicting the outcomes of these events should not be the focus. Instead, short-term market volatility should be used opportunistically for rebalancing purposes. A comprehensive, well-constructed portfolio is built for the long term and should not undergo major changes in response to short-term periods of volatility. These times serve as a reminder that portfolios should be positioned for the long term. Quadrant continues to maintain a long term view and focuses its efforts on asset allocation policy, manager selection, and systematic rebalancing in light of each client’s individual financial circumstances. This is a known certainty.”
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