Coronavirus: Economic and Financial Market Impacts

As the number of reported cases increases across a growing number of countries, concern about the impact of the coronavirus on the global economy and financial markets is being elevated. This concern was reflected in Monday’s sell-off across global equity markets. In the United States stocks declined 3.3% as measured by the Russell 3000 Index. Outside the United States the MSCI EAFE Index of developed international markets fell 2.4%.

According to the Center of Systems Science and Engineering at Johns Hopkins University the number of confirmed coronavirus cases exceeds 80,000 with approximately 97% of the cases originating in mainland China. What has created growing concern for investors is the spread of the virus to areas outside of China including multiple European countries as well as the United States.

While the virus is expected to have a negative impact on the global economy, the level of impact is currently unknown. According to the latest reading of first quarter GDP the Federal Reserve Bank of Atlanta’s GDPNow outlook is projecting growth of 2.6%, versus an “initial NowCast” of 2.7% . The first quarter outlook from The Conference Board is for growth of 2.0% for the period. Other estimates call for first quarter growth to register a result as low as 1.0%. Currently there is no expectation of recession.

One key component of the global economy and potential disruptions to economic growth is the effect of the virus on supply chains. We have reviewed some research that shows the reduced levels of production outside of China, due to virus-related disruptions. However this research has not been meaningful so far. Moving forward we will be watching for further developments and assessing their impact on economic growth and financial markets. This will be done within the context of our investment process and, if warranted, appropriate allocation shifts and/or changes within proprietary strategies will be made.

In the interim, the events surrounding the virus and its expansion to regions beyond Asia is an opportunity for investors to evaluate their investment goals and objectives in the context of risk tolerance and level of comfort in a period of heightened volatility.

Contributed by | Jon Augustine, CFA, Chief Investment Officer

Jon is Chief Investment Officer for BTC Capital Management. Jon is responsible for firm-wide risk management and oversight of all investment processes and strategies. Prior to joining BTC Capital Management, Jon was CIO & Director for WB Capital Management Inc. Jon earned his Chartered Financial Analyst (CFA) designation in 1985 and has more than 30 years of investment management experience. He is a member of the CFA Institute and the CFA Society of Iowa. Jon earned his BBA in Finance and a Masters of Business Administration degree from the University of Iowa.

Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates, FactSet.
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