The Illusion of Headlines

As the unfortunate coronavirus continues to increase in severity, headlines scream that surely this is a cataclysmic economic event. According to reports, companies’ business prospects are slowing, supply chains are being impacted and business activity is suffering.

Of particular importance on an economic basis is the short-term impact of the virus on businesses and their operations. Just this week Apple reported that they likely will miss earnings estimates because of the extended closure of manufacturing facilities and retail locations in China. We expect other companies to report similar information as earnings season marches on. Beyond the human tragedy, this is the economic story in the headlines right now. 

But one should also recognize that sometimes headlines don’t necessarily tell the whole story. Sometimes headlines fail to put news in the proper context. Such is the case with this current virus panic.

Certainly, the loss of life and those impacted from this disease are significant. As of February 19, 2020, 74,674 people have been infected with this virus resulting in over 2,126 deaths (see chart below). These numbers are sure to rise and no one for certain can determine what the outcome will be. 

Source: https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6

But one should put this in the context of other diseases that sweep the world on a regular basis. In 2018-2019 the US reported that 35,520,883 people had influenza and 34,157 reported deaths. So, while it is certainly troubling news that a new virus will add to these numbers one should recognize that the coronavirus figures pale in comparison to what we normally deal with on an annual basis (the CDC estimates that 21 million people will eventually get the flu this season).

Source: https://www.cnbc.com/2020/02/03/the-flu-has-already-killed-10000-across-us-as-world-frets-over-coronavirus.html

I am often asked why markets have not collapsed during this latest viral panic. The answer is simply that current economics, including interest rate levels and GDP growth, suggest that the US economy is relatively solid. While the virus outbreak will certainly put a dent in GDP growth, we do not expect it to crush the United States economy.

When you’re reading news headlines, try to decipher the real long-term impact of these stories. Recognize that while headlines may be alarming, they may not necessarily mean immediate doom as some might predict. Weekly headlines tend to be disposable.

We continue to monitor economic conditions consistently and are looking for clues as to the short and long-term impact of the coronavirus on markets around the world. We do our best not to overreact, but instead thoughtfully focus on deciphering what adjustments we should make based on emerging information.

Our thoughts are with those suffering from this horrible outbreak. No one can know for sure how this will play out, but you can be assured we will be watching and adjusting as needed.

If you have any questions about this information or anything else, we might be able to help with, please let us know.