Your Financial Future: Coronavirus leaves major financial impact
The Covid-19 coronavirus hit China a few weeks ago. While it was a new strain of virus, it was related to some others we have dealt with in the past. It has been estimated that about 80% of the cases are relatively mild.
Some people have compared it to the flu. While most of us are not medical experts, the world health organizations started to look into and tackle the problem as is their responsibilities. How soon a cure or vaccine will take to develop is unknown at this time.
While cases seem to be leveling off in China, we are seeing new cases pop up in many other countries. China was able to contain it somewhat by taking extraordinary restrictive actions. It would be hard for our government to lock down and quarantine such large parts of the country. China has not stopped the spread, but it is slowing down.
The problems in China affected many manufacturing plants that supply consumer goods to the U.S. and the rest of the world. This could cause some product shortages and lost profits. Company earnings are one of the biggest drivers of stock prices. The virus has had a major impact on many companies around the world. There is a tremendous loss of profits. Seventy percent of our economy is driven by consumer sales.
Something, such as people cancelling a cruise or an airplane ride can never be made up. Anything that is time related cannot be recaptured. If it is a lost consumer sale, it might be made up with additional purchases in the future. As people lose wages from missed work or layoffs, the loss of income may not be made up, reducing possible future sales. The same applies to future retail sales if people are afraid to shop because they fear getting the virus. Airlines and cruise companies could push back or cancel future orders for new planes or ships, which could affect many jobs. There are many unknowns about when this situation will improve.
The stock market has reacted violently. We are seeing volatility down 2000 points one day and up 1000 the next day. While many elements of the economy such as unemployment are strong, many other parts are more fragile. We had a fully-priced stock market that was on an 11-year bull run and was due for some correction. Many people wanted to deny the possibly of that happening or thought they could out think it.
We discuss several times each year the stock market. While there is never a good time for a crash, there is a worst time. That is right before or early in retirement. That is when sequential risk can make retirement uncomfortable. You have to plan and consider your time horizon and other variables. Major corrections happen and their duration can vary widely. If you bought $100,000 of the S&P 500, on Jan. 1, 2000 it took 12 years to recover your investment.
No one has any idea when the market might recover. Some economists are more optimistic and think it might recover by the end of the year. Others think we could have a real recession by next year. Your retirement is too important to guess. Next week we will discuss ways to protect your family.