Over the past week international and emerging markets stocks took a hit from the emergence of a new ‘coronavirus’ in China. The potential that it could spread rapidly was, rightfully, a source of concern, bringing back memories of the SARS pandemic of 2003.

From a medical standpoint we have no input other than the initial data which fortunately seems to show that this particular strain is a bit less nasty than SARS, nevertheless the initial outbreak this year — on the eve of the Lunar New Year — probably contributed to the heavy impact on Asian markets.

However, consider that the Chinese equity markets during the SARS pandemic (remember that was seventeen years ago) were deeply impacted by SARS.  The pandemic broke out at the end of the 2000-03 bear market, and that bear market came on the end of the 1997-98 Asian crisis.  The news of the SARS outbreak was big competition for headlines, coming at the time of the second Iraq war in early March of 2003.  I remember thinking that perhaps life would be changed in the mega-cities of Asia by the virus.  It didn’t help that China tried to minimize the publicity which limited attempts to contain the outbreak, and also meant that many people did not believe the early news that the worst was over.  It would appear that this time around, that lesson has been learned.

With that in mind, Hong Kong’s HSI Index declined sharply between March and mid-April 2003 and that extended the last leg of the 2000-03 bear market that had begun in Dec of 2002.  The US also had its low-point in early March 2003.  Here’s the key: the low point in the US Index came just after the high-point in number of SARS news mentions.  (Not a coincidence!)  SARS media mentions continued at a high level during the spring and by mid-July it had recovered all of the ‘post-SARS’ lost ground, and by mid-July we witnessed the entire December thru April decline – with Hong Kong entering the monster bull market that continued till the end of 2007.  Bottom Line – the impact on the HSI index was powerful but brief, and was quite overshadowed by the general overall economic environment which was turning positive at the time.

The performance of China’s SHSZ300 index is even odder. This index was very much a minor market participant in 2003 and was primarily dominated by local news flows. It was impacted much less than the Hong Kong markets. I believe that the seemingly logical conclusion is that in spite of the initial sharp Asian market’s reaction to the new virus, the impact is likely to be short, and most likely will not be as poorly handled as the SARS virus.  The direction of these markets will, in the end, most likely be determined by local monetary and fiscal policies.

Interesting trivia.  So far, I see headlines indicating about 17 deaths from the new coronavirus.  CNN headlines from September 27, 2018 indicate the in the US, an estimated 80,000 Americans died of flu and flu complications the prior winter’s (2017) US Flu pandemic. (data from US CDC).

(Dates in the article from Marketfeld’s website.)

Ron’s Market Minute — Market Returns in Year Four of a President’s term

SO, yes this is the fourth year of the current President’s first term. Historically, the S&P500 Index* has been positive on a total return basis during 19 or the last 23 ‘presidential 4th years’. That dates back to 1928.  Market has also been positive for 17 or the last 19 4th years. Average return for the Index during the last 23 presidential 4th years has been a gain of +9.9%. (Source BTN Research) What does that tell us? Only that we enjoy trivia. There have not been enough samples for the data to indicate anything.  We still find it interesting, however.

And speaking of trivia, we like to watch money flows in and out of the markets. It is now a well-known fact that 2019 was a pretty good year for markets- especially in the US. True, markets certainly did fluctuate, but parts of the year were pretty positive. In keeping with the theory that the ‘herd is usually wrong’ I find it interesting that the bulk of the new money invested last year went into bonds.  Despite the fact that bond yields are historically very low (many portfolios of stocks have a higher yield than the US 10-year treasury bond), that’s where most of the money went. And also, of interest, the bulk of the new money in 2020 is also heading into bonds. 

Nope, but again it is interesting. Does that fact predict anything? Nope again. Just interesting trivia. We can’t find much else to comment on this morning, so have a great day, and enjoy our positive markets.  They are strong and running. And that environment won’t last forever, either. 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk

This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at lindaw[@]denkinvest.com. If you are receiving this commentary via email and would prefer not to please let us know either by email or phone.

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