The volatility of the stock market has been attributed to the coronavirus outbreak. Though the virus began in China, it threatens those of us on other shores. This virus is spread through coughing, sneezing and touching objects touched by the infected. There are many forms of the coronavirus, we’ve learned, some deadly, some not so much.
You may remember that in the early 2000s a respiratory form of the virus called SARS (severe acute respiratory syndrome) killed 774 in 30 countries. And starting in 2012, MERS (Middle East respiratory syndrome) killed 858.
This is an Opinion
The deaths were tragic. It seems, however, the most common side effects are anxiety and fear. Given the fact of worldwide travel in general, and the physical closeness of air travel in particular, isolated cases limited to an epidemic in specific geographies can spread. The worst case would result in a pandemic across continents, like what happened in another era with smallpox and tuberculosis.
With a pandemic entire countries — indeed, cultures — can be thrown into a type of panic that paralyzes routine activities, including day-to-day commerce driven by consumers. Worldwide disease control and general societal health must come first, of course. But with so many economic activities tied to China — from technology to machinery, furniture and clothing, exposure to shared Chinese intellectual capacity and original equipment or component manufacturing, and so to the virus itself — our own economic activity, based in part on consumer spending and reflected in the stock market, can suffer.
It suffers from a realization that when China coughs, global economies get a fever and can show signs of serious illness. And they are.
New York media report that U.S.-based companies like Delta Airlines and American Airlines, Caterpillar and casino companies owning Chinese properties have all lost value since the virus news began. Disney has also closed theme parks in Hong Kong and Shanghai.
The consistent thread in all this is that wherever large numbers of people congregate for work, entertainment or leisure, those enterprises have been and will be impacted by the virus. With no consumers, business stops in its tracks.
Be on the lookout, too, for how this election year could add volatility to the marketplace, as political advertising gobbles up the attention of eyeballs and ears on media platforms. It all started in earnest during and after the Super Bowl.
One antidote usually prescribed for major investors is the sacking of stocks and the moving of funds into Treasury bills and gold futures. There is another strategy that may be relieving some of the financial symptoms, and that is moving investments to companies with big brands.
There is no doubt that domestic economic growth is slowing. The Commerce Department reported 2.3% growth in the U.S. economy in 2019. This was a result, in part, of consumers keeping their wallets shut. What is growing is the national deficit and debt, both in the trillions. The government is on a weekly borrowing binge, with no sign of how to pay it back. Not feeling so well?
But companies with big brands tend to weather storms. Their cash flows are somewhat more stable. Their ability to train customers in alternate habits, trim costs and bolster earnings makes them resilient.
As Yahoo Finance says, “… the value of brands is that they instantly convey information on quality, durability and consistency to consumers. These traits help such stocks counter market gyrations. And if the market pulls itself up in the near term, such companies will make the most of the positive trend as their products and services are widely accepted.”
The coronavirus is serious. Its pervasiveness may be greater than we know. And, at this writing, there are developing cases in the U.S. Not sure if we all yet need masks, but it is a good practice, especially in our annual flu season, to keep the sanitizer handy, whichever brand you choose. And, please, cover your mouth when coughing or sneezing. That brand of courtesy is just common sense.