Local financial advisers discuss economic impact of COVID-19

The Dow Jones Industrial Average climbed almost 1,300 points Monday, regaining about half of the value it lost last week due to concerns over the worldwide spread of coronavirus and its impact on the global economy.

But that doesn’t necessarily mean smooth sailing for investors as financial advisers say the stock market will continue to be volatile as long as there is uncertainty about coronavirus, officially known as COVID-19.

“Coronavirus is likely to be in the news for months and will likely have a significant impact on global growth,” according to Scott Colbert, chief economist with Commerce Trust Company in St. Louis.

“The market is ‘human’ and humans don’t like uncertainty,” said Cheryl Mothes, a financial adviser with Edward Jones based in Jackson.

Mothes said it’s not unusual to have a “correction” in stock prices from time to time, “but the speed of it was kind of jarring” with the market losing more than 3,000 points — or several trillion dollars in value — in just five days. It was the market’s worst weekly drop since the financial crisis of 2008.

“We anticipated volatility in 2020, but the fundamentals are still very, very strong,” she said. “The economy is strong, jobs are strong and interest rates are low.” In addition, she pointed out, the stock market is still up about 12% from where it was this time last year.

Mothes and other financial advisers say they’ve been in close contact with many of their clients during the stock market’s seven-day roller-coaster ride.

“Not knowing what’s coming next, we work with our clients to make sure their portfolios are weatherproof, because we do have these storms from time to time,” she said, “but if people are concerned and can’t sleep, they should call their financial adviser and get a sense of what their options are.”

At the Cuba Financial Group in Cape Girardeau, Tyler Cuba said last week’s market loss wasn’t unprecedented.

“In fact, in the last six day-to-day declines of 3% or greater, the market rebounded higher a month later,” he said, but added the caveat “past performance is no indication of future returns, and it’s uncertain whether history is a good teacher in this instance.”

He agreed with Mothes the markets don’t like uncertainty.

“The truth is that we can’t yet gauge the full economic impact (of coronavirus), and by the time we can, the volatility may have passed,” he said.

Southeast Missouri State University finance professor Ben Dow said coronavirus is having a “ripple effect” on the world’s economy, with a disruption in the supply chain for many manufacturers who depend on components made in China, where the majority of coronavirus cases have been diagnosed.

“When you have anything that interrupts potential cash flows, like coronavirus, you have market uncertainty and increased volatility,” he said as the New York Stock Market closed Monday.

He compared coronavirus to a Category 5 hurricane, which can leave billions of dollars in damage and result in market declines due to reduced manufacturing output and declines in consumer spending.

However, unlike a hurricane, Dow said there’s no end in sight for the coronavirus outbreak.

“We don’t know how quickly it will spread or how long it will be before it will be contained,” he said. “With a hurricane, you know what it is, but with coronavirus, it’s unknown.”

One reason for the market’s steep drop last week is the “bad news” about coronavirus continued for several consecutive days.

“As more information came out, we went from bad to worse to worse to worse,” he said. “We have a fear of the unknown. Once we know more (about coronavirus), then things will probably settle down.”

As of Monday afternoon, more than 90,300 cases of coronavirus had been diagnosed since mid-January in at least 76 countries and territories around the world. Of those, nearly 3,100 people had died as a result of the outbreak, mostly in China.

In the United States, there have been 100 coronavirus cases as of Monday afternoon, resulting in six deaths, all in the state of Washington.

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