Thirty days ago, nobody could have predicted the stock market rally would be in jeopardy due to a virus. In these challenging times, I wouldn’t recommend adding to your holdings just yet, even after last Friday’s 600-point slaughter. I’d use this time to build your cash position. I wouldn’t sell anything either. These kind of events do happen occasionally, and the key here is not to panic.
The Coronavirus is pretty much restricted to China – although there are a few isolated cases here in the United States, mostly from people who have recently visited China or have been in close contact with those who have. Keep in mind, in 2019, over 180,000 people were hospitalized by the flu, which caused 10,000 deaths. This by far, is a greater concern domestically.
That being said, the issue here isn’t the virus itself, it is the productivity of China and what impact the virus will have on their economy. If the Chinese economy suffers, the rest of the world will suffer. This is the bigger issue.
Right now, investors don’t know what to do, what to expect or how long the spread of the Coronavirus will last. Every day, the media keeps reminding us of the increasing tally of reported cases. This definitely doesn’t help calm investor nerves. The VIX (Volatility Index) has spiked since the first cases of the virus have been reported, indicating there is much uncertainty in the market. What seemed to appear as an unstoppable bull, now looks like a train about to derail, unless the tracks can be fixed…and fixed quickly.
If you have some cash on the sidelines and you think the market has factored in all of the bad news, the only thing I would recommend doing is buying shares of companies that will not be effected by the Coronavirus. Companies like AT&T, Comcast or Verizon. Or even some consumer staples like Clorox or P&G.
I usually make it a habit of investing a bit of money at the beginning of every month – dollar cost averaging – but I haven’t put any new money in play yet. I’d like to give this another week or two to play out. When I’m ready to jump back in, I will do so carefully and most likely invest in XLV (Healthcare ETF) or XLP (Consumer Staples ETF), just to play it safe for now.