Additional Commentary by Allen B. Lang, Senior Portfolio Manager
WHAT ELSE CAN HAPPEN??
As I write my comments, the market, overall, is down 14-16% depending what index you follow.
In previous newsletters we thought there would be some high volatility, but not in one weeks time. The terrific run we had is not over. This is just a correction that is normal in markets, both up and down. An 8-12% correction was expected by many and we have exceeded that. That is not to say that we will not see more volatility, because we will.
The MOST IMPORTANT thing to remember is, “Do you own quality investments with historically good sales, quality earnings and a history of raising dividends along with a leading position in their industry?” If you do, then corrections in the market, while it may create angst, is only temporary. We are not in the situation of the late 1920’s. We have a strong economy. We make, and continue to, provide the world with products, and their orders are not going down, but up.
Believe me when I say, that if we thought any investments currently in our portfolios warranted a sale we would have advised our clients.
OK let’s talk about the Coronavirus. Why, because it is on everyone’s mind. The Chinese government was late in letting the World Health Organization (WHO) they had a problem when, whatever they were working on, escaped into the public areas. When they realized they had a problem that was not able to be solved immediately they notified WHO and the nations. Immediately many nations and their pharmaceutical companies started working
on a cure. These companies have been working 24/7 since the WHO released the information. One particular company has said they have positive results in lab tests and that the FDC is putting it on a “fast track” for further testing. Other US companies have said they too have positive initial results. An Israeli company has said they have found a successful drug to combat the Coronavirus. We are not in the epidemic stage (yet), and I believe all nations are working together for a cure. In the meantime, fortunately, the amount of cases in the US is very low.
Yes, this situation is a tragedy, but not like the Chernobyl fiasco decades ago, when a Russian nuclear plant had a meltdown and Russia never released the true destruction that the meltdown could and did cause. Not only did hundreds die, thousands of farm animals were contaminated from nuclear waste clouds that blew over Europe.
The Coronavirus, and its potential for disaster obviously affected our stock market. So many companies have international clients that they cannot deliver to or in many cases, we cannot receive goods from countries that have had breakouts of the virus. This tragedy only pushed up the time line for our market correction.
As I said in our 2020 Outlook, I still believe we will hit new highs in the indexes. But as we close in on the election in November we will witness a good deal of volatility.