These are no doubt the “interesting times” from the old Chinese proverb. As discussed before, bull markets die from trigger points and not old age, and we experienced both in just 20 days. On February 20th the S&P 500 was 3,400 and on March 23rd it was 2,200. That was a 35% drop in 20 trading days. We entered a war with 3 fronts; the Covid-19 disease, the energy price collapse, and a contraction of all consumer-based economies. Although all 3 are scary, the cure may be worse than the disease.

Double digit down years in the stock market are rare. In the last 100 years, the Dow Jones market index was up 70 years and down 30. Only 16 years out of the last 100 was the market down in double digits and it was down greater than 20% in only 6. Declines both expose risk and reveal opportunities. I will always remember 9/11/01 when 3 terrorist flown airplanes crashed into buildings. A fear of flying gripped the country. However, the period after the crashes was one of the safest times to fly. The risky time was before the crashes. Remember, the lower the market goes, the lower the risk goes, and higher the opportunity goes.

For some examples, the virus is on the decline in China and South Korea and 98% of all listed Chinese companies are back in production. More than 75% of the S&P 500 companies have dividend yields higher than the US 10-year treasury yield. State and local pension plans have gone from an average of 60% equity to 40% in equity in the last 20 years creating pent up demand.

One discussion that always seems to arise is “It is different this time.” This fear of the unknown quells many investors into inactivity from the mysterious “difference.” Actually, it is always a little bit different every time, but the difference never negates the fundamental laws of the physics of investing.

The pundits talk now about the timing and shape of the recovery. V shaped, U shaped, L shaped. In 1987 we had a quick V shaped recovery. In 2008 we had a slow V shaped recovery. The golden thread throughout all of this is that all have a recovery. The question is not how to time it, it is how to position for it.

The onset and spread of the coronavirus is expected to cause global GDP growth rates to be revised downward by economists. The International Monetary Fund (IMF) initially set its forecast for global growth in 2020 at 3.2%, up from 2.9% last year. The estimated cutbacks in China alone — where growth had been forecast at 6% for the year, but may come in closer to 2% — could reduce that 3.2% rate down toward 2.5%. After adding in the facts that Japan’s economy contracted 6% in the latest quarter and that Germany has been flirting with recession for the past year, it becomes clear that 2020 is likely to be the slowest year for growth since the financial crisis years of 2007-2009. The damage to the consumer-based economies and worker unemployment may be one of the worst ever. To spur growth, look for central banks around the globe to cut rates, and for governments to consider fiscal stimulus programs. The US government already launched a several trillion-dollar stimulus campaign.

Morningstar has 3 widely differing estimates for GDP entitled Base case, Bull case, and Bear case. All of these seem optimistic.