Financial advisers feeling immune to economic risks of coronavirus

The stock market has shrugged off the mysterious virus even as it spread to more than three dozen countries, killing more than 1,100

February 12, 2020 BY JEFF BENJAMIN

Even as the mysterious coronavirus has spread to more than three dozen countries, infecting approximately 45,000 people and killing more than 1,100, financial advisers and their clients in the U.S. are mostly taking the lead of the stock market and essentially shrugging off the threat.

“I’ve gotten fewer inquiries about it than I was expecting, and most of the questions I’ve gotten were more about whether they should be traveling than about whether they should be adjusting their portfolios,” said Michael Hennessy, founder and chief executive of Harbor Crest Wealth Advisors.

“There will be an economic impact because the Chinese economy will have to slow down, and we already saw that in commodity prices, which are like the canary in the coal mine,” Mr. Hennessy said. “But I tell my clients we’re still long term and we’re not changing portfolios based on news coming out of China, because this month it’s China and before that it was Iran.”

First discovered in mid-December in Wuhan, China, the airborne virus so far has hit China the hardest, infecting 44,663 people and killing 1,113. But the number of countries with infected citizens is rising and medical experts have yet to identify a treatment or inoculation.

Meanwhile, the S&P 500 Index, which experienced a brief 3% decline between Jan. 22 and Jan. 31, has rallied by 4.5% since then and is up nearly 4% from the start of the year.

“Clients are as nonconcerned about the coronavirus as they were about Iran a month ago,” said Dennis Nolte, vice president at Seacoast Investment Services.

“The market did react to it, for about a day or two,” Mr. Nolte said. “There’s a reason Disney closed in Shanghai, and it might be one of the reasons [Shanghai’s] stock market is not participating in the rally.”

While the coronavirus continues to spread and inspire headlines, many Americans might be finding peace in comparing the virus to the flu in this country. For example, this year through Feb. 7, at least 19 million people in U.S. had caught the flu, according to the Centers for Disease Control, which says the flu has already killed 10,000 people this season.

Under the category of “better safe than sorry,” Federal Reserve Chairman Jerome Powell said last Tuesday that it is too early to know whether the outbreak will impact central bank policy, but stressed that, “We’ll be watching this carefully.”

The bond market, typically a step or two ahead of the equity markets, is also paying close attention. Concerns over the virus are being cited as fuel for gains in bond ETF that are driving down yields.

U.S. bond funds, which have experienced $21 billion worth of inflows this year despite solid economic data that would normally push more money toward equities, are likely benefiting from the bigger picture perspective on China.

According to a report from Mercer, China’s economy, which is expected to be hit hard by the virus, represents 15% of global GDP. That’s up from its 4% share of global GDP during the SARS epidemic in 2003.

Severe acute respiratory syndrome, which also originated in China, ultimately infected 8,098 people worldwide and killed 774, according to the World Health Organization.

Even against such a backdrop, a lot of financial advisers are sticking with their long-term perspective or assuming the virus will not impact investment portfolios.

“For most clients, including those entering retirement, we wouldn’t recommend taking any action within their portfolios specifically in response to the epidemic,” said Steve Branton, an adviser at Private Ocean. “We don’t believe it makes sense to alter a long-term strategy created in coordination with their financial plan in response to short-term market events.”

Allan Katz, owner of Comprehensive Wealth Management Group, described the coronavirus as a “nonevent” from an asset allocation perspective.

“We have had scares like this in the past with Ebola and SARS, and after the knee-jerk fear reactions, everything was fine,” Mr. Katz said. “It will probably hurt China the most as more people get quarantined but that will end soon.”

Rob Greenman, lead adviser and partner at Vista Capital Partners, plans to address the coronavirus with clients by reminding them why they’re paying for professional advice.

“It’s in situations like this when we remind clients of the investment policy statement that we put in writing,” he said. “The investment policy should be reviewed periodically to ensure the plan remains appropriate, with revisions made primarily in response to changes in specific circumstances and rarely in response to current market conditions.”

Even as the mysterious coronavirus has spread to more than three dozen countries, infecting approximately 45,000 people and killing more than 1,100, financial advisers and their clients in the U.S. are mostly taking the lead of the stock market and essentially shrugging off the threat.

“I’ve gotten fewer inquiries about it than I was expecting, and most of the questions I’ve gotten were more about whether they should be traveling than about whether they should be adjusting their portfolios,” said Michael Hennessy, founder and chief executive of Harbor Crest Wealth Advisors.

“There will be an economic impact because the Chinese economy will have to slow down, and we already saw that in commodity prices, which are like the canary in the coal mine,” Mr. Hennessy said. “But I tell my clients we’re still long term and we’re not changing portfolios based on news coming out of China, because this month it’s China and before that it was Iran.”

First discovered in mid-December in Wuhan, China, the airborne virus so far has hit China the hardest, infecting 44,663 people and killing 1,113. But the number of countries with infected citizens is rising and medical experts have yet to identify a treatment or inoculation.

Meanwhile, the S&P 500 Index, which experienced a brief 3% decline between Jan. 22 and Jan. 31, has rallied by 4.5% since then and is up nearly 4% from the start of the year.

“Clients are as nonconcerned about the coronavirus as they were about Iran a month ago,” said Dennis Nolte, vice president at Seacoast Investment Services.

“The market did react to it, for about a day or two,” Mr. Nolte said. “There’s a reason Disney closed in Shanghai, and it might be one of the reasons [Shanghai’s] stock market is not participating in the rally.”

While the coronavirus continues to spread and inspire headlines, many Americans might be finding peace in comparing the virus to the flu in this country. For example, this year through last Friday, at least 19 million people in U.S. had caught the flu, according to the Centers for Disease Control, which says the flu has already killed 10,000 people this season.

Under the category of “better safe than sorry,” Federal Reserve Chairman Jerome Powell said Tuesday that it is too early to know whether the outbreak will impact central bank policy, but stressed that, “We’ll be watching this carefully.”

The bond market, typically a step or two ahead of the equity markets, is also paying close attention. Concerns over the virus are being cited as fuel for gains in bond ETF that are driving down yields.

U.S. bond funds, which have experienced $21 billion worth of inflows this year despite solid economic data that would normally push more money toward equities, are likely benefiting from the bigger picture perspective on China.

According to a report from Mercer, China’s economy, which is expected to be hit hard by the virus, represents 15% of global GDP. That’s up from its 4% share of global GDP during the SARS epidemic in 2003.

Severe acute respiratory syndrome, which also originated in China, ultimately infected 8,098 people worldwide and killed 774, according to the World Health Organization.

Even against such a backdrop, a lot of financial advisers are sticking with their long-term perspective or assuming the virus will not impact investment portfolios.

“For most clients, including those entering retirement, we wouldn’t recommend taking any action within their portfolios specifically in response to the epidemic,” said Steve Branton, an adviser at Private Ocean. “We don’t believe it makes sense to alter a long-term strategy created in coordination with their financial plan in response to short-term market events.”

Allan Katz, owner of Comprehensive Wealth Management Group, described the coronavirus as a “nonevent” from an asset allocation perspective.

“We have had scares like this in the past with Ebola and SARS, and after the knee-jerk fear reactions, everything was fine,” Mr. Katz said. “It will probably hurt China the most as more people get quarantined but that will end soon.”

Rob Greenman, lead adviser and partner at Vista Capital Partners, plans to address the coronavirus with clients by reminding them why they’re paying for professional advice.

“It’s in situations like this when we remind clients of the investment policy statement that we put in writing,” he said. “The investment policy should be reviewed periodically to ensure the plan remains appropriate, with revisions made primarily in response to changes in specific circumstances and rarely in response to current market conditions.”

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