Coronavirus Update
Our team has been closely monitoring the coronavirus with hours of extensive research, meetings with our Investment Committee, and even an interview with an epidemiologist for the CDC. Please find our commentary on the coronavirus below.

The coronavirus COVID-19 outbreak has recently caused a stir in markets around the globe. As always, we have our eyes trained on events and market conditions that have the potential to cause extended market volatility, like the coronavirus. First, we would like to extend our deepest sympathies and prayers to all of those affected.

According to Worldometer , a company who aggregates worldwide statistics, there are 48,165 active cases of coronavirus and this figure has been declining since February 17. Unfortunately, the virus has resulted in 2,770 casualties. To put this into perspective, according to ABC News, approximately 14,000 people have died thus far during the 2019-2020 flu season. The good news is that there is already a drug that is moving towards first phase clinical trials that will combat the coronavirus. Due to advancements in drug technology, this happened in a matter of three months for the coronavirus verses twenty months for this to happen for the SARS outbreak in 2002-2003.

There has been some skepticism of coronavirus data coming out of China, but worldwide statistics point to a slowing in the pace of growth of coronavirus cases. As for the United States, there have been 57 cases with 6 recoveries and 51 cases being monitored. Zero cases have been reported as critical or serious cases.

As President Trump mentioned during his address to the nation this evening, Johns Hopkins recently ranked the United States as the country most prepared to deal with health emergencies. We believe that our country is well-equipped for such a threat.

  • What does this mean for markets?

As we look back for some perspective on past outbreaks and their effect on market volatility, the SARS outbreak of 2003 saw a 38-day trading decline of -12.8% for the S&P 500. Similarly, the Zika virus precipitated a -12.9% decline of the S&P 500 towards the end of 2015 and into 2016. Historically, reactions to outbreaks of this nature have been short-lived, but can be sharp. As of February 25, 2020, markets as a whole are down -3.59% since a market peak on February 19. This has wiped out some modest gains to start the year. Much of the headlines and fear surrounding the coronavirus have been centered solely on equity markets and indices such as the S&P 500, the DOW Jones, and the Nasdaq as they are down -8.01%, on average, since February 19. While this is an asset class to have our eye on in times like these, it is important to keep a keen eye on markets as a whole to gain a more accurate picture of how a diversified portfolio may have been affected. For example, global bonds and US aggregate bonds are up nearly 1% over that same time period.
The United States has remained relatively insulated from the coronavirus and it is our belief that our country has the infrastructure and resources to combat outbreaks of this kind. We do see a high probability of exposure to market volatility for companies that rely on imports and/or exports from China. However, this temporary decline in supply to and from China will be made up for later in the year as the risk of the virus is hopefully mitigated. Another positive aspect of Chinese supply and demand is that many companies had already been shifting supply lines away from China due to the Trump Tariffs. Our moderate model, for example, maintains only approximately 6% exposure to emerging and developed Asian markets.

  • What does this mean for my investments?

We have been working closely with our investment committee to monitor this situation and make any prudent adjustments deemed necessary. At this time, we have concluded that a slight reduction of our equity exposure is warranted and this adjustment was made today by eliminating only one position from our portfolios. This will not only mitigate some potential volatility in US markets, but also slightly reduces our exposure to emerging and developed Asian markets.

We are also continually evaluating fixed income alternatives for both bonds and equities, including structured notes, to further stabilize our risk positions and help us continue to combat market jitters. Again, with collaboration with our investment committee, we will continue to make prudent adjustments as opportunities arise.

We continue to maintain our disciplined approach to investing with a focus on diversification of both asset class and investment philosophy. We are also steadfast in our commitment to deliver appropriate investment solutions for our clients.
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Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor. BCM and Reed Financial Group are independent of each other. Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Third party ratings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client's evaluation.