This is the first global consumer shock (especially for U.S. and Chinese consumers) since the Great Financial Recession (GFR) of 2008-2009, so the fear gripping capital markets is completely justified because the consumer has propped up the post-GFR global economic recovery. In addition, post-GFR, business investment has been quite weak (outside of the energy sector and maybe big data investments) with a lot of debt issuance used to buy back stock, a non-productive use of capital.
Of course, that was even more true of non U.S. central banks as interest rates in a majority of countries were already at 0%, but it is now also true in the U.S. where the Federal Reserve just lowered rates to 0%.
In a follow-up note to our recent pieces on the COVID-19 outbreak, Signature Coronavirus Commentary - February 28, 2020 and Coronavirus: Separating the disease from the market reaction - March 2, 2020, we wanted to outline our thoughts on the developing public health responses to COVID-19 and at a high level, the potential implications to the economy and the markets.
There is a lot that is known about the novel coronavirus (COVID-19) and the outbreak, but there are also many unresolved questions. In this piece, we wanted to provide some perspective on the course of the outbreak, including both what has happened so far and what might still be to come – separating the disease from the market reaction. As a caveat, although I am extremely familiar with the health care sector and have a Ph.D. in molecular biology and biochemistry, I am not a virologist or an epidemiologist, so my views merely represent my opinion as a relatively well-informed market participant and not as a scientist or medical professional.