by John Fox, CEO & Chief Investment Officer
Three weeks ago, when Italy reported a large increase in coronavirus cases, the stock market responded with a significant decline in prices. Investors feared that the actions needed to stop the virus (i.e. staying home) could result in an economic slowdown and possibly a recession.
They were right. At least on the slowdown.
First came the cancellation of sporting events, conferences, Broadway shows, and other large public gatherings. Now, restaurants, bars, movie theaters, and entire hotels are temporarily closing their doors. And Delta Air Lines (not a Fenimore holding) has announced they are parking dozens of planes and asking employees to take unpaid leave.
Last Thursday, the S&P 500 Index closed trading down approximately 27% from its February 19 high.*
Is There Any “Good News?”
A couple of things to consider:
- A drop of this magnitude is close to the typical stock market decline during a U.S. recession. According to J.P. Morgan research, the average S&P 500 stock market decline during six recessions since 1970, and three financial crises since 1992, is 25%. The market is currently there. Although we are not officially in an economic recession, perhaps the market has already priced in this expectation.
- The U.S. government is bringing its full capabilities to this problem:
- The President has declared a State of Emergency.
- Congress has passed fiscal measures to help mitigate economic damage, with more announcements coming.
- The Federal Reserve slashed interest rates to near zero, and is moving to ensure there is liquidity in the system and that bank lending continues.
In our view, the key milestones to watch out for are a slowing in the number of new coronavirus cases and, then, the ability for people to resume normal living.
No one knows when this might happen, but the success China and South Korea have had in slowing the growth of new cases shows it can be accomplished, and the U.S. — and certain states in particular — is now acting decisively to combat the spread.
In our opinion, once the government gives the “all clear,” we could have a fast economic recovery.
Fenimore’s Business Operations
In the meantime, rest assured that Fenimore Asset Management is well prepared to ensure that business continues seamlessly during these challenging times, with you and your investments as our first priority.
- Our investment research analysts – and entire team – are fully operational. We always have complete access to our research systems and can monitor the news at all of our holdings, as well as among potential investments. We can make trades and take advantage of discounted opportunities to invest in quality businesses for the long term.
Our time-tested investment process of investing in a select number of quality companies that are financially strong, generate significant cash profits and have skilled, ethical management teams is designed to keep Fenimore and our investors well-positioned for both the near and long term.
- For the foreseeable future, we will email you updates at the beginning of each week. You can also access these messages from our website home page within “News & Views.”
- Following state and federal public health guidelines, in order to protect our investors and associates, we won’t be scheduling in-person meetings at this time. However, we are 100% available for all calls and emails to assist you and serve your needs.
- If you’d like to speak with one of our associates, please call (800) 721-5391.
We hope our regular updates, and consistent, long-term investment approach, combine to reinforce your confidence in our team. Thank you.