On Mornings with Carmen, aired on March 4, 2019 with Peter Kapsner, we have discussions about the economic impact of the coronavirus as it is starting to impact the American economy.
Here are the show notes:
Shut down much of China à supply chain problems for American businesses which source goods and services out of China à those American businesses have less product to sell à they cut back or stop production à our economy slows down
This is also true of Europe – as Europe slows, this harms our economy too.
Answer: diversify supply chain – which can take years.
Example: Apple & China:
- China is Apple’s largest consumer market – 20% of it’s entire revenue base
- 3M indirect workers in China for Apple
- Megafactories of 250,000+ workers
- Tarriffs have hurt Apple – while the iPhone was exempt, their other products were not
- Most of its’ products are assembled in China (in 2019, ~70% of all smart phones were manufactured in China
- Apple warns investors it won’t meet it’s own sales estimates à market cap has dropped by over $100B
Entire industries are vulnerable to a slowdown due to the Coronavirus.
- Tarriffs have hurt these verticals.
- The coronavirus has nearly shut them down
- Tech companies
- Apparel makers
- Industrial-equipment mfgs
A prolonged delay in getting parts to make products for sale would not only hurt corporate earnings, but put them in danger of making their debt payments on time.
Quote from Barrons.com:
The coronavirus has severely disrupted nearly every link in the global supply chain, from raw materials to components to finished goods, which could lead to curtailed production, product shortages, and financial stress across a range of industries. How manufacturing delays ripple through the economy isn’t so straightforward, however.
Why is the stock market dropping so much?
- Markets need certainty to be stable
- Certainty comes from having the right information at the right time
- While we’re learning more every day, we still don’t fully understand this virus
- We don’t know how long China and the global supply chains will be affected
- So the market is pricing in this uncertainty
What should people do?
- Don’t panic
- Long-term investors should consider extending their positions – there’s a number of bargins in the market right now – “buy low – sell high”
- Short-term investors shouldn’t be heavy in stocks anyways.
- Your 401K will be hurt – but just stay the course – the market historically has given a 10% return
- The fundamentals of most businesses are strong
- Once the supply chain is repaired, the market should bounce back close to the 30,000 mark
- A Trump re-election will help the market because of predictability and certainty
- A Sanders election will hurt it dramatically – especially if the Dems take the Senate and hold the house