Every month, Personal Capital Chief Investment Officer Craig Birk recaps major market-moving events.
Coronavirus fears began to hit markets late in January, offsetting a respectable start to earnings season and pushing global stocks lower for the month, especially in China. The virus has now infected over 25,000 people and killed over 500. It is a terrible virus which has already caused significant human tragedy. It is too soon to know how the outbreak will spread or project the economic impact. As an investor, it is important to remember there have been similar scares in the past, the worst case usually does not happen, and the global economy is massive and difficult to dent.
So far in early days of February, markets downplayed risk from the virus. Investors have resumed an eager desire to buy large US growth stocks. The very biggest technology related stocks accelerated while value and small cap stocks declined. While earnings results from growth leaders have met expectations on balance, recent market behavior feels more like behavioral greed than fundamental analysis. The long rally in growth stocks now seems to have entered a stage where more investors are buying on the belief that someone else will pay a higher price as opposed to a view about intrinsic value.
These periods can be both exciting and scary. Eventually, they usually end with a period of significant losses for the hot market segment, but the ride up can be bigger and longer than many expect. Mistiming style bets or piling on late is often costly. We believe that a diversified approach, owning both what is in favor and what is out of favor, will shine over the coming few years.