Derek Kravitz, Investment Analyst, discusses the volatility the markets have been experiencing across the globe due to the coronavirus and how FSA is responding.
March Stock Market Update Transcript
Hello everybody. My name is Darek. I’m the investment analyst here at Financial Services Advisory with your March 2020 market update. As you may be aware, markets have been experiencing a tremendous amount of volatility in the last couple of weeks due to the continued presence of the coronavirus in the headlines. Today, I would like to talk about what the ramifications to global growth might be with the continued presence of coronavirus and what that may mean subsequently for the market activity heading into the rest of the year.
So why is coronavirus continuing to plague the markets? Well, the answer lies in the fact that the containment effort in certain countries may slow growth in those economies to a point where they are tipped into recession. The market is concerned that certain regions around the world may see slower growth and even recessionary periods later this year. I’m going to examine a couple of those regions today.
First, turn to the Asian region. As we know, the virus originated in China, and containment effort there has ramifications to the supply chain which may not have even been fully felt yet. Big companies like Apple, Microsoft, Intel, etc. have factories in China, and a lot of those factory workers weren’t even present for a few weeks given the activity surrounding coronavirus. We may yet still have to see what happens with slow economic growth out of China for the first quarter of this year. Then we have other countries such as Japan which also the experienced coronavirus cases but were also seeing slower economic growth even before coronavirus was in the headlines. Japan’s economy in the fourth quarter of 2019 contracted by six percent or more on an annualized basis, and this was before there was even any cases of coronavirus in the country. We’re going to be looking to Japan’s economy this year to see whether or not this continued slowdown persists or if it bounces back. This is going to be a big tell for the global economy this year. If there was already slow growth, and then you combine that with people staying home, not going to movie theaters, baseball games, etc., you may see an even further slowing in economies such as Japan and South Korea, big industrialized Asian economies that may have the tell for what the global economy is going to do for the rest of the year.
Turning to Europe, Europe has been plagued by low economic growth for over ten years now. The coronavirus is certainly not something that’s going to help global growth in that region. If you look at the countries of France, Spain, and particularly Italy, which is now being completely put on lock down by the country’s government in an effort to contain the coronavirus, we cannot expect to see stellar economic growth there this year either. These economies rely heavily on tourism dollars, especially in Italy. If you have a country where nobody’s flying there to spend tourism dollars, the country’s economy may even slide into recession at some point this year.
Back here at home in the United States, we’re not completely immune from the coronavirus’s effects either. Global slowdown has the potential to affect our markets as well. We’ve seen great job numbers lately, record low unemployment, but that doesn’t mean that can’t reverse if we have a slowdown in economic activity here as well. At FSA you can be sure that we’re monitoring our safety nets to ensure that we’re allocated properly. Coming into the year, we were heavily allocated to stocks as the market was performing wonderfully. However, that has obviously since changed, and we’ve moved to a much more defensive position, especially if there are continued effects from a coronavirus that leaves the market lower. As of the time of this recording, markets saw their largest decline since the financial crisis yesterday, on Monday, March 9, in part due to coronavirus scares coming out of Italy, as well as a failed OPEC supply deal that saw oil drop 25 percent in a single day with other possible ramifications to the economy. You can be assured that we’re closely monitoring our safety nets and our appropriate exposure levels.
My name is Derrick, I’m the investment analyst here at Financial Services Advisory, and thank you for watching our March market update.