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Economic Stimulus vs. the Coronavirus

March 8, 2020

by Tommy Williams

Once again, we are reminded what volatility means. It means going up and down – or it could be down and up. In both cases it is not a straight line. For example, during the week of February 24th

we saw the biggest one day drop in history in the market only to be followed on Monday, March 2nd by the biggest one-day surge in the market. The market taketh away and then it “claws its way back up” as they say in financial documents.  Can government stimulus cure a virus? Hardly, but this type of volatility is driven by the irrational movements of man and machine, and any number of things can drive such nonfundamental investment decisions. This is a good time to remind everyone – it is unwise to react and make decisions when there is uncertainty in the air. Throw in a Presidential election year and we see an opportunity to politicize everything. The excitement abounds.

I’ve learned a lot about the Coronavirus (Thought it was a Mexican beer). For example, I thought wearing a surgical mask could protect you from it. Why are all those people in the airport wearing masks? Well, if you’re infected (and may not know it) the mask can help you not spread the virus. It can help remind you not to touch your hands to your face! However, the mask does not prevent you from becoming infected if you come in contact with it. Who knew?

In the event you’ve been under a rock the past couple of weeks and haven’t heard what you should know about the coronavirus, there is a lot of good – and evolving – information out there. It is now officially known as Coronavirus Disease 2019 or COVID-19. Last week, it spread around the world to countries outside of China. If there is any good news about the contagious disease, it is COVID-19 may be relatively mild.

In its February 28 briefing, the Director-General of the World Health Organization (WHO) stated, “It also appears that COVID-19 is not as deadly as other coronaviruses including SARS and MERS. More than 80 percent of patients have mild disease and will recover.”

The Director-General identified the symptoms of COVID-19 stating, “…for most people, it starts with a fever and a dry cough, not a runny nose. Most people will have mild disease and get better without needing any special care.”

Currently, more than 20 vaccines are being developed. In the meantime, there are things you can do to protect yourself. Highly trained and experienced epidemiologists are weighing in from all over the world. For the best information I suggest you go to (Center for Disease and Control Prevention) and/or (World Health Organization). I think the information there is likely to be superior to the news networks.  

On the other side of this financial tug of war is monetary and fiscal policy. These are tools governments have access to which hopefully can minimize excessive market volatility. Just as a virus is complex to explain (or understand) these financial tools are much too complicated to explain in this column. However, you might be interested to know a few facts. A monetary stimulus involves cutting interest rates to stimulate the economy. Fiscal stimulus is a term for tax cuts or new government spending. The impact of these actions can be amplified when multiple nations work in tandem to create a global effect. As the Coronavirus has become a global concern, it was hoped the G-7 (Canada, Germany, Italy, Japan, United Kingdom, France and the U.S.) would work together to stimulate the global economy. On March 3rd in an emergency meeting (the first such meeting since 2008 in the height of the financial crisis) our Federal Reserve reduced interest rates by ½%. However, the other G-7 members did not follow our lead and the market responded by falling almost 800 points! Score that one for the virus – but stay tuned (and calm). This is not the time for decisions driven by emotional reactions. I suggest you step back and observe the roller coaster until we have a fundamental reason to do differently. I’ll keep you posted.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. This material was prepared in part by Carson Group Coaching.

Visit us at Tommy Williams is a CERTIFIED FINANCIAL PLANNER™ Professional with Williams Financial Advisors, LLC. Securities offered through Private Client Services, Member FINRA/SIPC. Advisory Services offered through RFG Advisory, a Registered Investment Advisor.  Williams Financial Advisors, LLC, RFG Advisory and Carson Group Coaching are separate entities from Private Client Services. Branch office is located at 6425 Youree Drive, Suite 180, Shreveport, LA 71105