Coronavirus and Market Thoughts

A few thoughts on the market volatility the last few days...

The coronavirus will have an impact for an undetermined amount of time, especially until the source is found and largely due to the lack of a defined treatment/vaccine. That uncertainty and amplification from the news cycle make this current 10% decline more palpable. Chinese industries like leisure, consumption, and manufacturing have been affected. Isolating workers also slows household formation, which reduces the purchase of durable goods & housing. This is occurring in a country whose GDP had already slowed from 7% in 2017 to 6% in 1Q20 (according to www.tradingeconomics.com).

However, when I look at the market from a technical view it gives a more reasonable view. Prior to this recent pullback, the Dow Jones Industrial Average was roughly 10% above its 200-day moving average. Even if you look at a 5-year chart, the DJIA was about 10% above its 50-week moving average, and just over 20% above its 200-week moving average. So, when you consider that we're a decade into an economic expansion, with valuation is slightly extended, a pullback is more understandable - unpleasant as it may be.

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