Rowing a Boat Calmly

Keep Calm and Carry On

March 9, 2020
Michelle HolmesBy Michelle Holmes
AVP - Investments

All eyes are on the coronavirus. In fact, the market has not focused this much on a global disease outbreak since the SARS outbreak of 2003.

Chart: Market Attention to Disease Outbreaks

Even though the number of coronavirus cases in China started to level off over the last couple of weeks, things are not calm and market volatility remains high.

Chart: New Cases in China Slow

This is because the number of coronavirus cases outside China increased.

Chart: New Cases Outside China Increase

The full impact of the virus in unknown which causes fear. The human impact of the disease ranges from no symptoms to acute respiratory illness depending on age and other health factors which again adds to the fear. This fear is driving social and market behavior.  

Through the end of Friday (March 6), th S&P 500 is down 12.1% from the market peak on Feb. 19. Market corrections (market declines between 10% and 20%) are not uncommon, they tend to happen on average once every twelve to eighteen months. Historically the impact of a health-related market sell-off tends to be short lived. The chart below shows the stock market recovered within a few months during two of the most recent health related market sell-offs.

Chart: Market Effect, SARS vs. Zika Outbreak

What is the Expected Economic Impact of the Coronavirus Outbreak?

Global GDP will likely slow during the first two quarters of the year with a pronounced slowdown in China. Then rebound in the third in fourth quarters as employees return to work and companies rebuild inventories. Goldman Sachs expects the virus to shave off 1.0% of global growth in 2020 bringing their base case for global GDP down to 2.0% for the year. This is inline with where we are seeing other global growth estimates for the year.

Chart: GIR Baseline Market Scenario

Chart: GIR Upside Market Scenario

Chart: GIR Downside Market Scenario

Travel and tourism industries will be some of the hardest hit areas in the first quarter as travel came to a halt in China and significantly decreased throughout the rest of Asia in February.

Chart: Hotel Beds Purchased in Asia

Central banks around the world started to cut rates to protect against the economic impact of the virus. On Tuesday, March 3, the Federal Reserve announced a one-half percent cut in its benchmark federal funds rate, lowering it to a range of 1.00% to 1.25%. While the change was increasingly expected in futures markets, the timing was a surprise. Rate changes in between scheduled Open Market Committee meetings are not unprecedented but are unusual.

Chart: US Emergency Fed Rate Cuts

Fed Chairman Powell commented that the Fed will act as appropriate to maintain economic growth in the face of trade and confidence disruptions from coronavirus issues across the globe.

For now, the biggest impact of the Fed’s move is on fixed income. Two-year Treasury notes are below 0.5%, and ten-year Treasury notes are about 0.71%. Regarding equities, the last week has removed some of the valuation overhang present from the run-up to record highs. Plus, the dividend yield on the S&P 500 is twice that of ten-year Treasuries – historically a good omen for stock prices over the longer term. 

What Should Investors Do? 

Today’s market environment reminds me of a theme from one of our recent quarterly economic outlooks: keep calm and carry on.   

The recent events do not change our strategies or actions. We do not want to react to days like this in fear and panic sell. We will navigate the market volatility as we always have, with diversification, an attention to valuation, and a focus on quality.  We recommend other investors do the same. Volatility is back (in spades!), but it is appropriate to continue investing on a steady course. 

For more information on how to check your portfolios for appropriate asset allocation and diversification, contact an advisor today. For information on the coronavirus, health and travel advisories visit the Centers for Disease Control website ( And as always, keep calm and carry on. 

About the Author

Michelle Holmes, CFA

Michelle Holmes is an Assistant Vice President in Investments with Security National Bank's Wealth Management Division. A Chartered Financial Analyst® charterholder, Michelle has two decades of investment experience. She graduated from Morningside College with a Bachelor of Science in accounting, business administration and economics.