Market Update – Coronavirus and Oil – March 11, 2020

I just wanted to send a quick note regarding current market conditions. 

First, don’t panic. Fear is the enemy of investing. Sit back, take a deep breath and try to think logically about what’s happening.

There is no question that with both the virus and the market, we are being swayed by rational and irrational fear. I understand the depth of that fear, but it is never our friend when we talk about investing.

The coronavirus will get worse before it gets better. Does that mean hundreds of thousands of people will die? That’s not likely. What it does mean is that we may be inconvenienced for awhile.  Those with underlying medical issues need to take extra care. We all need to take extra care mostly to protect others in the event we have the virus without any symptoms. Without a doubt, the virus has and will continue to temporarily create an economic slowdown.

With regard to oil, the problem is supply. There is more oil in the world than can be consumed which pushes prices down. This has to do with a spat between Russia and OPEC.  Russia wants to expand their market share, and OPEC is fighting against losing market share.  OPEC decided to increase their oil production to glut the market which lowers prices.  They are doing this to maintain their position as the biggest player in the world oil market.  When we have more than what we need, in order to keep market share, prices have to go down. So basically, oil is now on sale.  Of course, oil company profits will decrease dramatically which leads to lower stock prices.  Yet, the drop in oil creates some positive conditions for us personally and for companies as well.  

The question I ask myself is this…did US companies lose trillions of dollars in value in the last 2 weeks because they are all being mismanaged and are no longer relevant?  Certainly the answer to this is a resounding NO!  Another question I ask myself is…are we in a systemic financial catastrophe or an episodic one?  Is our current condition a symptom of a financial system that is broken or a result of an external force that will solve itself in due course?  I see no evidence to support the notion that our financial systems have broken down – quite the contrary.  The White House, banks, the Federal Reserve and Congress are all considering the many options available to help alleviate the impact on businesses and individuals. I have great confidence that there will be some type of amelioration to improve the outcome in both the short and the long run.

The hardest part about all of this is waiting.  We are waiting to see if the virus comes into our communities; we are waiting for the stock market to bottom; we are waiting in line for toilet paper; we are waiting for Saudi Arabia and Russia to negotiate a truce; we are waiting for this all to be over. 

Yet, when it’s over, in due time there will be another economic challenge.  That is why our decision making always needs to be measured and thoughtful.  Now is not the time to sell – you would be selling into a down market.  There will be a time to buy in the not too distant future, but we don’t believe we are there yet.  When markets decline, it creates a buying opportunity, eventually.

Stay the course.  If you’ve bought good things, everything will be fine.  If you can’t stand listening to or reading the news, then stop.  Sometimes when the world seems scary, the best thing we can do is fill our lives with the people and things that bring us joy. 

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Market Update – Coronavirus and Oil – March 11, 2020
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