They say history never repeats itself, but it can certainly rhyme.
If so, I want to write poetry.
During the first week of February 2020, an acquaintance of mine sent me photos of an empty city in China, this city being the now famous metropolis of Wuhan.
As I gazed at the airport and empty shopping malls of what would later become, arguably, the birthplace of COVID-19, my mind immediately connected to the worry I had about the markets. and their destination because of the Trump tariffs.
With the Dow Jones near an all-time high, rising since Trump’s election in November 2016, I was already looking for an excuse to pull the portfolios off the markets. The fear, at the time, was that the tariffs imposed on China would lower China’s GDP (the economy’s total output) by more than one percent, and that the markets would sell on a lower-than-expected Chinese GDP. .
Seeing an empty city in the busiest country on the planet due to a virus called Corona, I returned to research the effect that a similar event was having on Chinese GDP.
The 2003 Severe Acute Respiratory Syndrome (SARS) event sickened about 8,000 people and resulted in a death rate of 10%. SARS shrank China’s GDP by 1%, and at the time, China was only the 5th largest economy in the world,
Doing a quick check on worldometers.info/coronavirus/ (a great site for COVID statistics), the death rates were 3% and the number of COVID infections stood at 35,000. crossed. With the Dow Jones at or near an all-time high, with the tariffs already worrying me about their effect on Wall Street, and now I’m looking at a virus that already had ten times as many infections as SARS that has brought down 1% reduction Chinese GDP and China now the second largest economy in the world, I wrote an article on February 10, 2020 entitled “Effect of the coronavirus on the markets”.
The main theme of the article was that investors did not consider the possible effect that an exploding coronavirus could have on the markets.
Specifically, I wrote: “Unless the coronavirus is contained soon, a lingering presence could shake up the markets in the long term with possible serious consequences.”
The “grave consequences” have turned out to be true, if not the understatement of the century.
On my subsequent Money Matters radio show, I cautioned about the same and announced that I had taken appropriate action in equity portfolios.
From a few weeks after this article, in the early days of March, the Dow Jones began its historic 38% drop in a record time of just three weeks.
Fast forward to today and I’m starting to have the same feeling I did back then.
The similarities are striking. The Dow Jones is once again relying on an all-time high. Bailouts, unemployment bonus checks, Paycheck Protection Refund (P3) programs and other subsidy programs have ended or will end soon. COVID cases are on the rise and in some areas surpass the highest infection rates in summer 2020.
We’re finding vaccines aren’t the panacea we thought they were, and amid a massive resurgence of the new Delta variant, much of the United States is reopening with vengeance.
Theme parks are open, football stadiums will soon be filled with fans, 700,000 motorcycle enthusiasts have arrived in Sturgis for the annual motorcycle rally, and restaurants, theaters and other venues are opening up to record crowds.
Once again, I find myself looking for a reason to sell in an attempt to preserve what the 2020 rebound may have given us. Again, I have placed stops (sell orders when prices fall) on all positions in the portfolio.
While such methods do not guarantee losses, stops can help automatically eject positions if the markets start to fall sharply.
And like a bad dream that keeps coming back, Wall Street investors seem to ignore the possibility that once again, as COVID revisits its assault on mankind, in so doing, could also provoke a backlash once again. severe in the markets.
Marc Cuniberti holds a BA in Economics with Honors from San Diego State University and is the host of Money Matters which airs on 66 stations nationwide. California Insurance Lic # 0L34249. Call him at 530-559-1214 or visit http://www.moneymanagementradio.com