The effects of the Coronavirus continue to impact the financial markets. It may seem very bleak right now as more and more Coronavirus cases continue to make news. The fear in society and the effect on financial markets will create a trough in investment values similar to the selloff in the fourth quarter of 2018 and the first quarter of 2016. Currently the Dow Jones Industrial average is near 21,500. This is the same level it was at only 14 months ago.
D’Arcy Capital is confident that this trough will pass. It may get worse before it gets better but it should not continue forever. The cacophony of negative headlines will be slowly replaced with positive developments (fiscal stimulus plans, leveling off of cases, development of treatments, and vaccine discoveries). The negative news is already pushing out positive developments (real estate financing and refinancing are booming, online shopping, and web based business are continuing to prosper). As with the decline, investors and stock prices will respond well in advance to an “all clear” announcement.
The recent selloff in stock prices feels very painful because we are starting from an all-time high in stock prices (2/12/2020) and because people are simultaneously concerned about the health of loved ones. However, this selloff occurred when the economy is strong. The near-term focus on the Coronavirus will most likely create a short-term economic pause. We frequently discuss the long-term benefits of investing resulting from short-term volatility. The current environment is a “case in point.” To continue to benefit from long-term investment returns, we must foresee two to three months in advance and not two to three days.
In times of massive hyperbole and speculation it is always important to return to the fundamentals. The S&P 500 has a price-to-earnings ratio of 14.8 times and a dividend yield of 2.39%. These levels will begin to attract new investors.
D’Arcy Capital will continue to use this decline to reduce realized capital gains, take advantage of oversold sectors, invest available cash and prepare to prosper from a return to a normalized economic environment.
Recent Posts
