Market Update March 9th, 2020

The final flush?

Markets just opened down 7% this morning. This current panic should be temporary and short-lived in our opinion, so it is best to hang on and try not to look too closely at prices.

There can be a huge difference between prices on any given day and a company’s intrinsic value, and we never underestimate the ability of traders and investors to overreact on a short-term basis once fear comes into play. When the fear subsides, stock prices eventually return closer to their intrinsic value.

Russia and Saudi Arabia picked an unfortunate time to start a global crude oil price war over the weekend. After Russia surprisingly refused to adhere to OPEC’s output cuts, the Saudi’s (apparently growing tired of Russia’s games) decided to increase production significantly, causing oil prices to plunge. That and Italy deciding to lock down nearly a quarter of their population due to the Coronavirus, delivered the one-two punch to the markets today, which were already fragile after just testing their lows on Friday.  

Meanwhile, China apparently reported their first day without any new Coronavirus cases (as their number of active cases continues to decline), and South Korea reported that their number of new Coronaviruses cases is now declining.

We believe the economy is strong enough to withstand this Coronavirus outbreak. This is nothing like 2008, where a recession had already started the previous year, after 17 Fed rate hikes (from 1% to 5.25% between 2003 and 2006). Far from it. The economy is strong, interest rates are now at new all-time lows, and global central banks are discussing additional coordinated responses. Who knows what may happen. Russia and Saudia Arabia may even reverse their decisions that triggered today’s panic.

This market could turn back up as quickly as it has fallen. Corporate America is in good shape and so is the overall economy. The global economy, while weaker, should also be able to continue slowly growing, after getting through the weak patch from this Coronavirus disruption.   

We will see what the traders and investors do, as they get out and try to get back in without hurting themselves. We urge you to sit tight and not make any rash emotional decisions. I will continue to send updates as necessary, but please call if you want to discuss your situation.