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Market Decline Driven By A Panic Narrative


  • If there is one factor most disappointing about the coronavirus (COVID-19) outbreak, it is the panic narrative that seems to have overtaken a more rational narrative.
  • Certainly the coronavirus outbreak should be taken seriously, but common sense hygiene practices can significantly reduce the risk of any potential infection.
  • If one is truly a long term investor, this situation has likely created a buying opportunity, knowing it is difficult to predict market bottoms.

If there is one factor most disappointing about the coronavirus (COVID-19) outbreak, it is the panic narrative that seems to have overtaken a more rational narrative. This panic narrative is certainly contributing to the negative equity market reaction. In a tongue and cheek Saturday MarketWatch comment by Tom Lee, founder of Fundstrat Global Advisors, he notes one of the factors impacting the market may be investor concern of, "A meteor or alien invasion to end global existence has been spotted but its arrival is unknown (or a virus pandemic.)"

A couple of articles have been written about 'community' spread of the virus, that is, someone contracting the virus but did not have contact with a known infected person. An article appeared in Friday's Wall Street Journal and one on Slate's website. The Slate article, Why the Silent Spread of Coronavirus Might Actually Be a Good Sign, notes the death rate may be lower since there appears to be infected people that do not show significant symptoms. As stated in the article,

"If this turns out to be common, it's a good thing. It implies that the case fatality rate-the number of deaths divided by the number of infections-of this novel coronavirus is likely to be far, far lower than the reported statistics."

In terms of a more rational perspective, I concur with Ken Langone's comments on CNBC late last week,

"The rapid stock market correction since the Dow Jones Industrial Average's record high earlier this month 'far, far surpasses' the severity of the outbreak, Langone told CNBC on Friday. 'What I see more as a problem than anything else is this panic. And there is a panic going on if you look at the market.' He added that the virus' risk to the U.S. is being overblown."

This overblown reaction

This article was written by

HORAN Capital Advisors is an SEC registered investment advisor that manages investment portfolios for individuals and institutions. Our firm utilizes a disciplined investing approach that should create wealth for our clients over time. Our investment bias is to invest in companies that generate a steady return over time, i.e., singles and doubles. This singles and doubles approach tends to lead to investments in higher quality dividend growth/cash flow growth companies. On the other hand, there are times when a company's stock price seems to be trading below its fair valuation. Short term gains are possible in these situations. I have been managing investment portfolios for individuals and institutions for over fifteen years and believe investing is like running a marathon and not a sprint. Taking the road less traveled, more often than not, leads to higher returns. Visit: The Blog of HORAN Capital Advisors at (https://horanwealth.com/insights/market-commentary-blog)

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Comments (11)

Keep fiddling. Rome is burning. Which is worse? Coronavirus or a communist winning Democrat primaries?
Lord100 profile picture
SELL ALL RALLIES. Mkts over vaule more then anytime in history.

There is too many problems for the very over valued mkts.

-- MASSIVE debt, most over valued mkt. And overleveraged mkt ( corp debt 17Trillion, fed debt 25Trillion world wide debt 300trillion 330% of gpd)

-- Carona virus will have massive impact on companies cashflows and tax collection govt future reducing ability of govt to help.

-- future reduction of cash flows resulting in less buybacks.

-- FED is desperate now so reduced rates, as corporates saw a freeze in credit mkts, past week high debt mkt froze. Banks will not lend to risky companies

-- Major economies are impacted massively, china, india, South Korea, Italy etc appl will take a big hit so will.many companies.

-- big tech regulations which make up 20% of US market. Trillion dollar companies like appl, msft will be sold due high valuations , liquidity issues and forced selling by some 700 etfs and lack of institutional interest for TRILLION dollar companies.

-- There are no shorts to cushion this mkts.

-- Outsize impact due to big drop in sales in china, japan, sout korea, europe, now india. Slowly us as well.

-- US companies refinancing needs 1 trillion this year alone to payback old debt.

-- Repo mkts problems and feds are reducing support for repo mkts.

No reason to be long this mkt. SELL rallies mkts hardly down 10% after a huge run up since oct 30%
driven by trump
Driven by leftist media agenda. Impeachment didn't work? That's okay, let's blame Trump for coronavirus and take quotations out of context to damage his reelection chances.
So not panicing means blindly taking losses of any magnitude and pouring money in at any valuation? Wall Streeters encourage ordinary people to "invest" as they themselves collect fees on the funds. No investment, no fees.
MAYHAWK profile picture
You do realize that you don't have an actual loss until you sell, right? Held through 08-09 with some bargain buying and back to a huge profit by '11. This is just another weeding out of the weak hands and an opportunity to pick up bargains. The media-driven panic is ridiculous. Common sense precautions will win out in the end. This is not 1918-19.
The hype is standard for networks. The more ominous the higher the ratings whether a virus, or a natural disaster. Add in the desire for much of the media to tie it to Trump in an election year and you have lunacy.
Steady Income profile picture
I recently added to BEP, BIP, SON, CSCO, MMM, GPC, PRU and ORI. Love those dividends!
Peter Cooper profile picture
If this were a market bottom rather than a dip from a hugely overvalued top then you would be right. Sadly this is not the case.
Thank you for some common sense. It feels as though some people have absolutely lost their marbles lately exacerbated by extreme partisan animus.
Wiekierc profile picture
"the panic narrative that seems to have overtaken a more rational narrative."

hmmm...Kind of like FOMO overtaking high valuations but in reverse.
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