China Goes Viral

The Coronavirus daily updates are on every news outlet I have. The unfortunate numbers are stacking up and the stock market is beginning to notice. Last week the year-to-date gains were erased as new cases appeared in our country. This week stocks are headed back up from a somewhat sketchy press release showing treatments for the virus “might” be helpful.

I keep being asked, “Why would the US stock market go down in response to this virus?” Here are the reasons:

  1. China sequestered 50 million in or near Wuhan. That area is now a ghost town, which means the economic impact in that area will be drastically lower. This is a huge negative for the economy of China, potentially lowering their GDP (annual growth rate) from 6% down to 4%.
  2. Now think of all the products the Chinese are not importing and buying from US companies during this time. Then think of the US multinational companies doing business in China like Starbucks, Target, Disney, Taco Bell, United Airlines, etc. These businesses are closed and will be taking losses for the time being.
  3. Finally, think about the slowdown in the global economy this will cause. Even though the US and global economies are growing, the pace of growth of 2.1% in the U.S. last quarter is modest and we can’t afford to slow down before we’ll be tipped into recession.
  4. You can start to see how if the Chinese economy sneezes – figuratively and literally – the US stock market could catch a cold, or maybe a virus is a better metaphor.

Let’s keep a level head though, we’ve seen this type of thing before. The SARS pandemic, another coronavirus from 2003, gives us some idea of what could happen. 8000 people were infected and 800 died from that virus. The stock market went down 10% in response, but in mid-March had bottomed and stocks rebounded up 26% for the year.

This virus is spreading faster with 28,000 infected today but, thankfully, has only one-fifth of the mortality rate at 563. The latest projection is for the virus to peak in April and subside from there. This means we’ll continue to hear about the tragic sicknesses and deaths, but it won’t last forever.

TD Ameritrade Conference

That brings me to the TD Ameritrade national conference Bruce and I attended in Orlando, FL last week. The conference was a treasure trove of best practices from some of the best and brightest advisors across the country. I came home with a long list of ideas to improve our portfolio, planning, advice, cybersecurity, and other aspects of our business

The other reason we attended the conference was to hear about the Charles Schwab TD Ameritrade buyout. It’s now official that Schwab will be acquiring TD Ameritrade and the deal, which will make one mammoth investment company managing over $5 Trillion in assets, should close the second half of 2020. There will be no changes until then, but after midyear, we’ll know more about what kind of changes will take place like name, website, etc.

One concern we had is that TD clients would have to create new Schwab accounts which would have created a lot of irritating paperwork for everyone. Thankfully, TD said this will not be the case and we’re glad to not have that looming.

As always, please let us know if there’s anything we can help you with. 

Thanks for reading,

– Bruce Porter & Tim Porter, CFP®