February 28, 2020

 

"The transient nature of investments requires diversity of thought and a process that adjusts to the changes in the business cycle”. GNL

Commentary:

It is safe to say that an unusual set of global circumstances are derailing the global economic landscape. The coronavirus Covid-19, originally from China, is spreading to every continent in the world due to foreign travel.

For investors, the main issues are with the disruptions in the supply chains originating in China and other Asian countries- items like parts for engines, technology components, and even ingredients used in medicines. Changing these supply lines will take time but the main concern seams to be the spread of the virus. Anything related to travel is getting pummeled. There seems to be as much psychological damage as economic.

Looking back on past viruses - in 2003 for instance, Investors are looking at what is called “peak” reported virus cases which refers to the point that the spread of the virus is not cured but infections start to decline. Vaccines will take many months or years to develop, but containment is the focus.

There is no “top”:

Investors always look at the value of their accounts in dollar terms and worry when their dollar values decline- especially from the top value. Realistically, there is no “top” since investments never go straight up without falling back some. We all know account values fluctuate up and down. Declines, however, are psychologically exacerbated when account values drop precipitately in a short time period. Behavioral scientists call this “loss aversion”, just a normal human condition.

This past week was unusual -the fastest one-week decline in decades. That is what happens when investors panic sell. We now have a technical oversold condition that is conducive for a rally. In fact, earlier today, the tech sector rallied into positive territory before sellers crashed the party only to finish the day in “POSITIVE” territory. The Nasdaq 100 finished up 0.51%. In other words, we are seeing early signs that buying could start relatively soon. Of course, relatively could mean a week or two, or in 4-6 weeks. With a strong US economy as a backdrop, investors will take advantage of the drop in prices. We will as well - as soon as we see some momentum shift. We may start “nibbling’ next week as some valuable positions are available at prices we haven’t seen since last October. In other words, this is quickly becoming a buying opportunity.

As always, this too shall pass.

Best Regards,

George N. Luciani CFP®

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