Capital Market Comment
February 4, 2020
Frank Mastrapasqua, Ph.D.
Principal, Chairman & Chief Investment Officer


As it has happened so many times in the past, just when a number of uncertainties were lessening such as Brexit, trade conflicts, and impeachment, the unexpected happens: coronavirus surprises the market.  Volatility has increased and prices have fallen quickly.  Fear of the unknown escalates and attempts to assess the economic damage becomes an ongoing phenomenon.  Goldman Sachs estimates that the consequences of the virus would reduce economic growth in the first quarter by 0.4%.  However, no one really knows, and estimates will vary widely.

The media’s information and disinformation flow, the momentum it creates in the automated investment instruments, and the rising emotional quotient accompanies sudden declines and feeds the fear.

The fact that investors have instant access to their portfolios heightens anxiety as they remain glued to changing values.  In another asset class, real estate, this problem does not exist, although values could be dropping as well.  Because this particular asset class is illiquid and marketability can be difficult, the commitment has to be long-term.  Imagine the consequences of instant access to the value of your real estate holding.  The need for a cardiologist would soar.  Equities should be viewed in the same context – long-term.

The unexpected events like the coronavirus should be looked at in an historical context.  In the past, we have experienced SARS, EBOLA, Hurricanes, Tsunamis, and last year alone 61,000 people died from the FLU, 647,000 were hospitalized, and 42.9 million got sick.  As serious as it is, and recognizing the negative impact on world economic growth, particularly in China, it should be a short-term phenomenon.  The adverse economic impact in the first quarter is likely to be followed by a rebound in Q2 and beyond.  The response system to this virus by numerous nations seems to be swift, although inconsistent, and in some cases inadequate, but the learning curve appears to be steep and sets the stage for dealing with future outbreaks.  Moreover, near-term economic measures may be taken by the major nations to soften the negative impact on their respective economies.  China has implemented a monetary move to add liquidity to the financial system by adding a significant sum of yuan through reverse repos in anticipation of their market opening after the Lunar New Year holiday.  The U.S. and France are reviewing the anticipated economic effects of the virus.  The U.S estimates a negative 0.2% impact on GDP.  The first quarter will also see the effect of the turmoil at Boeing.  It seems very likely that the first quarter of 2020 will generate the weakest growth rate of the year, given the exogenous factors.

As a result, value is created in periods of uncertainty, and this period appears to be one of those times.  Companies have not changed.  In fact, good company management will adapt to the changing environment.

The risk-off trade is driving the 10-year Treasury yield toward 1.5% and the S&P 500 dividend yield is moving up toward 1.9%, with the earnings yield near 5.75%.  It is hard to become negative in such a yield and dividend environment supported by an accommodative monetary policy.

Beware of the plethora of opinions that emerge at times like these.  Stick with rational thought.  Remember, fear sells.  The media feeds the fear and fuels the frenzy. The swift rebound in the U.S. stock market over the past two days may be already indicating that this fear is inflated.



If you have a question or need further information, please contact:
Don Keeney, CFA, CFP, Principal & Portfolio Manager in Nashville at 615-866-0882, or
Claude Koontz, CFA, Principal & Portfolio Manager in San Antonio at 210-353-0519, or

Mastrapasqua Asset Management, Inc. does business as M Capital Advisors.

104 Woodmont Boulevard, Suite 320
Nashville, TN 37205

200 Concord Plaza, Suite 500
San Antonio, TX 78216

© 2020 Mastrapasqua Asset Management, Inc. All rights reserved.
The information and opinions contained in this report should not be treated as fact or as insight that will produce desired investment results over time. Investment conclusions always bear risk, and that risk may not be reasonable for any particular reader. Obviously the writer, even assuming good intentions, does not know of the reader’s particular financial circumstance and therefore is not able to assess the propriety of whether a named security makes sense as part of a given individual, family, or institutional portfolio. Mastrapasqua Asset Management clients may, from time to time, own some of the companies mentioned. We hold out no duty to give readers of this column advanced notification of when we may change an opinion. To our knowledge, none of the information contained in our column would, when it becomes publicly available, have an influence on the valuation of a particular stock. Investors should receive investment advice based on an assessment of their own particular investment circumstances and not on the basis of recommendations in this report. Past performance is not indicative of future returns.

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