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Archer February 26, 2020 Special Update

Rand Holyoak   | 

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If it is not a problem in five years, then it is not a problem today.

The coronavirus is shocking the markets going back to last Friday. This has caused some panic in the markets and created more sellers. It is likely, earnings will drop by 10-15% for the first quarter and by 5- 10% by the second quarter before rebounding to the norm in the third quarter. Obviously much of this is dependent upon the coronavirus. We need to see the number of cases level off or even drop. We have seen the number of cases stagnate overall in the last week. The issue impacting the market is the spread to other countries. This has happened before in cases like SAARS, Ebola, Swine Flu, etc. Looking at the chart, it is tough to remember any of the below Pandemics and the Asian Flu which made the market drop 12.6% in 2003. Or the annual flu which according to Wikipedia impacts over 15 Million each year and kills well over 100,000 people per year.

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The market will go up and down on a daily, weekly, monthly, and even annual basis. This is normal. The average correction is about 13% from the high of the market at the time. Look at the JPMorgan chart below. Even though the S&P 500 index is up 75% of the time, it still has periods of time where it falls. This is nerve racking, yet healthy for the market. Many of these declines in the periods below were caused by some “crisis”. However, most of us can not remember each year, or what caused the declines.

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Looking Ahead:
We expect earnings to falter for the next quarter or two. However, this will be a temporary decline in earnings of businesses who have exposure to foreign markets. We believe the economy may get a bit softer before it ultimately rebounds in the third and fourth quarter of 2020. The climate for corporate earnings is positive and the environment for business growth will continue. We are in constant review of the markets and our investments and will make changes should we believe a change is warranted.

The Archer Team