Why the Corona-virus Provides a Great Buying Opportunity

Before discussing the opportunities that the coronavirus has given us on a platter of gold, let us learn a little bit more about what exactly is the coronavirus. Coronaviruses (CoV) are a large family of viruses that cause illness ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV). Coronaviruses are zoonotic, meaning they are transmitted between animals and people. Detailed investigations found that SARS-CoV was transmitted from civet cats to humans and MERS-CoV from dromedary camels to humans. Several known coronaviruses are circulating in animals that have not yet infected humans. Common signs of infection include respiratory symptoms, fever, cough, shortness of breath and breathing difficulties. In more severe cases, infection can cause pneumonia, severe acute respiratory syndrome, kidney failure and even death. Standard recommendations to prevent infection spread include regular hand washing, covering mouth and nose when coughing and sneezing, thoroughly cooking meat and eggs.
With the Coronavirus being the center stage of recent news, the markets has reacted negatively over the past couple of weeks as more cases have been found. With that, comes an opportunity to buy stocks on sale and pounce of opportunities that arise due to a decreased interest rate environment.
Low Interest Rate
A low interest rate environment occurs when the risk-free rate of interest, typically set by a central bank, is lower than the historic average for a prolonged period of time. In the United States, the risk-free rate is generally defined by the interest rate on Treasury securities. Over the past week, the 30-year fixed rates decreased by 4 basis points to 3.45%. Rates are down from 4.35% from a year ago in 2019. The 15-year fixed rates also fell by 4 basis points to 2.95%. Rates are down from 3.77% a year ago. The low mortgage rate environment coupled with high consumer confidence in the US is expected to drive home sales upward. I anticipate this trend to continue into the Spring.
Correction in the Stock Market
Fears over the coronavirus caused the stock market to close out its worst week since the 2008 financial crisis. The S&P 500 index fell about 11.5 percent in one week. The sell-off was fueled mostly by worry that measures to contain the virus would hamper corporate profits and economic growth, and fears that the outbreak could get worse. The selling has in a matter of days dragged stock benchmarks around the world into a correction — a drop of 10 percent or more that is taken as a measure of extreme pessimism. Other measures of the overall health of financial markets and corporate America are beginning to show signs of strain. The most profound signal about the future of the global economy is that interest rates are plunging to record lows. The yield on the benchmark 10-year United States Treasury bonds fell to about 1.15 percent. Jerome Powell, the chairman of the Federal Reserve, said Friday that the central bank will likely take action to boost the U.S. economy amid the steep stock market sell-off.
Corona Beer is also a victim
In early January, when Constellation Brands announced a $40 million marketing campaign for its new Corona Hard Seltzer, coronavirus had not yet been tied to any deaths. Now Corona beer is suffering from the similarity between its name and the coronavirus (so called because the spikes on its surface recall a crown, or corona in Latin). Google searches linking “beer,” “Corona” and “virus” surged as reports of infections increased. In the past month, 61 percent of Twitter posts mentioning Corona beer included discussion of coronavirus, according to Sprout Social, a social media management company. Constellation Brands’ shares are down more than 18 percent this week.
Hand sanitizers are selling out
On Amazon, popular brands like Purell, Germ-X and even Amazon’s own private-label Solimo were largely unavailable on Friday. What was available was coming from third-party sellers at what appears to be higher prices. For instance, a pack of two 12-fluid-ounce bottles of Purell was being offered on Friday morning by a third-party seller for as much as $49.99. A spokeswoman for GoJo Industries, a small company based in Akron, Ohio, that claims to have invented Purell in 1988, said in an emailed statement the company had increased production significantly to meet the increased demand for Purell and other products.
Some stocks are reaching all time highs – check out the share price of APT below, what a ride! Alpha Pro Tech is a leading manufacturer of products designed to protect people, products and environments, including disposable protective apparel and building products. They announced orders booked for APT’s proprietary N-95 Particulate Respirator face mask and have increased production to try to meet that demand.
How to take advantage of the Coronavirus
Potential Stock Market Gains – I anticipate the verbiage, “this too shall pass” playing itself out with the coronavirus. Historically, the market’s reaction to epidemics and fast-moving diseases is often short-lived. According to Dow Jones Market Data, the S&P 500 posted a gain of 14.59% after the first occurrence of SARS back in 2002-03, based on the end of month performance for the index in April, 2003. About 12 months after that point, the broad-market benchmark was up 20.76%. SARS resulted in a total of about 8,100 people being sickened during the 2003 outbreak, with 774 people dying, according to data from WHO and the Centers for Disease Control and Prevention. Separately, the S&P 500 rose 11.66% in the roughly six months following reports of the 2006 Avian flu virus — a fast-moving pathogen also known as H5N1. The market gained 18.36% in the following 12-month period.
Real Estate Investment – Due to interest rates being low, it might be a good time to seriously consider a mortgage and take on some leverage at such low rates. This would in turn boost IRR of assets in the long run. Of all the different asset classes, however, commercial real estate investments should be one of the least impacted by the coronavirus. Fears over the coronavirus will cause a short-term slowdown in commercial real estate transactions, but investments in office, retail and warehouse properties will be more resilient than other asset classes.
Personally, I plan on dollar-cost averaging into the stock market within the next few week and taking another closer look at the real estate market to take advantage of the dip in rates and if it all comes out to be a successful strategy then I will take it upon myself to drink a bottle of Corona Extra while celebrating the success. The one thing I will have to balance are my pre-commitments to purchasing some commercial real estate over the next few weeks but the beauty of it is they all have potential for massive gains in the long term.


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