Stocks had their worst week since the midst of the financial crisis last week as concerns over the COVID-19 outbreak showed little signs of slowing. This week, LPL strategists take a look at what the outbreak could mean for the economy and stock market going forward.
What we know
The virus continues to spread, with nearly 90,000 cases and more than 3,000 deaths globally, along with the first confirmed deaths in the United States. As the LPL strategists note, the mortality rate has been much higher for older people, while younger people have had a much lower mortality rate. Compare this with the swine flu pandemic, which impacted younger people more significantly.
Overall, the market hates uncertainty, and how this global health event will move forward has added to a high level of uncertainty. Recent data out of China showed an enormous drop in manufacturing and services, adding to concerns about what this could mean for the global economy.
Where are we now
Last week was a bad one for the markets historically, but we continue to believe this is a temporary development. We could very well have a huge hit to gross domestic product (GPD) this quarter and maybe next, but we expect the second half of this year to make up the recent weakness. As the LPL strategists note, markets have survived world wars, terrorist attacks, economic shocks, and financial crises, and the U.S. economy has been very resilient. Vaccine development is being fast tracked, and China has done a nice job containing the outbreak, as the number of cases there has been dropping consistently. Lastly, we expect the Federal Reserve to step in soon with a potential rate cut.
Some good news
It’s impressive to see how well copper has held up, as it is still above the lows from last fall. Additionally, China and Hong Kong were the top two markets last week, suggesting conditions in the location where this outbreak started are getting better. The LPL strategists note also that the credit markets haven’t shown fear of a coming recession, which is much different than many of the headlines we’ve seen. Lastly, March and April have been two of the best months for the S&P 500 Index over the past 20 years, so maybe seasonality will kick in to help.
Tune in now
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This Research material was prepared by LPL Financial, LLC.
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