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Perspectives

A Few Comments on the Coronavirus

by Fortem Financial February 25, 2020

  • Coronavirus-related economic fears continue to dominate markets, but we believe effects will be short term and limited.
  • Once investors begin to look past near-term risks, we think areas of the global financial market that have benefited on a relative basis (growth styles, defensive areas and bond market proxies) could take a hit.
  • On balance, we think the equity bull market should continue, but we are concerned that valuations look stretched in some areas.

Investor attention remains dominated by the possible economic impacts of the coronavirus. Investors had temporarily returned to a risk-on stance, on hopes that the virus had peaked, but a more defensive flight-to-quality trade took hold last week on news of additional outbreaks. Despite near-term risks, we expect coronavirus-related economic issues to be contained. Markets have been in a risk-off mode, with more defensive and growth areas of the equity market outperforming in 2020. In our view, economic conditions would have to worsen significantly for this trend to continue, which we think is unlikely.

We believe 2020 will still be a year of economic recovery. Before the virus, economic optimism was rising given easing trade issues. We still think the global economic positives outweigh the near-term risks, and expect the U.S. and global economies will accelerate modestly this year. Equity markets may be vulnerable to a correction. Following surprisingly strong returns in 2019, U.S. equity markets have continued to advance in 2020, despite the coronavirus fears. At the same time, earnings expectations have been falling. The combination of rising prices and declining earnings expectations may have pushed some areas of the market to be overvalued.

Most investors seem to expect the economic damage from the coronavirus will be moderate and largely contained, likely pushing back an economic rebound rather than derailing it. The extent of negative effects on corporate earnings is an important wildcard. Expectations for 2020 earnings growth had already been declining before the virus hit, and forward guidance from corporate management teams has trended more negative as results have been released.

We expect additional near-term disruptions to global economic growth in the coming months, especially as it relates to manufacturing and trade levels. We have already seen significant damage to the Chinese economy. And Europe (which has a much more export-oriented economy than the United States) is showing negative effects on growth. The economic silver lining of the coronavirus is that economic worries have suppressed bond yields and delayed a possible shift to tighter monetary conditions. Central banks remain extremely accommodative and show no signs of shifting policy, despite resilience in the service and consumer sectors.

From a markets perspective, investors appear more optimistic about longer-term growth prospects than at any point during the eleven-year-old recovery and expansion. Investors strongly believe that central banks will be able to stave off recession, despite coronavirus-related risks. The bearish interpretation of such a backdrop is that investors are overly complacent. We believe this is a typical indication of a late-cycle bull market. We think equity valuations look stretched, especially for the more defensive, growth-oriented and bond-like sectors. We would not be surprised to see additional volatility and some corrective action (especially within the more highly-valued areas of the market), but no near-term catalysts are emerging that would cause a recession or actual end to the equity bull market.

Robert (Bob) C. Doll
Senior Portfolio Manager & Chief Equity Strategist Nuveen Asset Management

Sincerely,

Fortem Financial
www.fortemfin.com

 

 

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

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Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client’s experience or of the Firm’s future performance. Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Five Star Professional Disclosure:
The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
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Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful. Forward looking statements are based on current expectations and assumptions, the economy, and future conditions. As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict. Actual results may differ materially from the anticipated outcomes. Carefully consider investment objectives, risk factors and charges and expenses before investing. Fortem Financial is a registered investment adviser with the SEC. Advisory services are offered through Fortem Financial.

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