Coronavirus and the U.S. Stock Market: What Happens Next?

Coronavirus and the U.S. Stock Market: What Happens Next?

March 5, 2020, 7:46 PM

You know you must be a Socialist-in-good-standing when, in the midst of a tumultuous stock market freefall, you lose the South Carolina primary and the market responds by rallying 1300 points to set a new one day record.

Then you lose on Super Tuesday and the market jumps 1200 points. But enough with the Bernie Sanders humor, let’s get down to serious business.

And the serious business I’m referring to is, what are we to make of the coronavirus and its’ effect on the stock market, and more importantly, the U.S. economy? It is afterall, the coronavirus which caused the aforementioned tumultuous market freefall and recent record volatility.

Let’s start by stating that by all accounts the U.S. economy looks fundamentally sound and healthy.

We have a supportive federal reserve bank, a supportive labor market, banks and the U.S. consumer are strong. Historically, when you have a healthy economy then glitches in the stock market tend to be short lived and short term. Markets hate uncertainty. Uncertainty breeds sell offs as traders prefer to play things more safely until they can get a better grasp of the economic and current event landscape.

We’re live in a time of record amounts of information. Record amounts of information coming at us at record breaking speeds. Wall Street traders are having a difficult time calculating and digesting all that’s happening—especially in China, the virus epicenter—where the government has clamped down on communication. If Wall Street can’t figure out what’s happening in the short term, then with markets at an all time record high, instinctively it makes sense for traders to sell.

Can the Trump administration do a better job at alleviating the concerns and uncertainty on Wall Street? In a word, ‘yes’.

In my opinion Vice President Mike Pence is a solid choice by President Trump to lead the coronavirus taskforce. But he needs to be out there everyday addressing the public and media with updates and developments. This will be a significant step forward in helping remove the uncertainty on Wall Street. Secondly, the President—despite the temptation over what his opponents are guilty of—needs to quit blaming the virus hysteria on the media, as was correctly recently pointed out by Charles Gasparino on Fox Business News.

Wall Street traders do not care what Chris Matthews, Joe Scarborough or Whoopi Goldberg have to say. It’s irrelevant. Addressing them only adds to the uncertainty in the minds of traders. Again, keep Mike Pence out there daily and give updates and as much strategic information as possible.

To put this into proper market perspective—when we have seen pullbacks of 10% in the context of a bull market which we currently have—in the vast majority of instances the stock market has then gone on to produce double digit returns over the next 12 months. Let that sink in for a moment.

We only have 139 cases currently in the U.S. The economy is fundamentally sound. China is likely not going to become a third world nation. Short term we will see market volatility. Long term the bull market continues. Now, if we can only figure out how to keep Bernie in the race.

By Rick Amato