Watch: The impact of the coronavirus on financial markets

What’s Next for the U.S. and the World

Capital Wealth Planning Founder & CIO Kevin Simpson joined Yahoo Finance’s “On The Move” team to discuss the current effect of the Coronavirus on the markets, and the long-term predictions for the economy.

Market Expectations

Amidst continued uncertainty around the effects of the Coronavirus on the market, Kevin Simpson, CIO of Capital Wealth Planning, was asked his thoughts on the longevity of impact. Simpson responded that the virus is certainly a Q1 event, but that he expects it to affect the second quarter as well.

“While the second-largest economy in world is essentially closed for business currently, it’s important to note “temporary” as a key word. Long-term effects on the market are not expected.”

Supply Disruptions

When asked how much of the supply disruptions, with a company like Apple, have already been priced in, Simpson shared that Apple can still go a little bit lower.

“I think Apple has been an amazing tear. We exited the position recently, but we’re big fans of stock. From an evaluation standpoint, I still think these effects could continue, and you may be able to reiterate a little bit cheaper.”

Overlooked Market Issues

In response to a more direct question about the biggest issue(s) markets have overlooked regarding the Coronavirus, Simpson stated that we’re overlooking the impact it could have if it expands beyond China.

“The death toll has been horrific, but the good news is that it’s two percent, compared to SARS of 2003 which reached a death toll of closer to 11%. China represented four percent of the market during SARS. Today, China represents closer to 16%. So, in a global economy, the greater impact this virus will have the longer it goes on.”

Slowdown Predictions

In pressing Simpson for his thoughts about the potential for a market slowdown, Rick Newman, a Yahoo Finance columnist, received the following response.

“I try not to make short-term predictions about a bump. We have a lot of things we’re positive about and a lot of tailwinds in the market. We’re excited about long-term prospects, but short-term, this is clearly going to have an impact. As we approach the later part of the summer and election season, there’s lots of opportunity for volatility. Having said that, we’re still calling for a higher market at the end of 2020.”

Economic Data Shows Effects of Coronavirus

It’s no secret that countries like Germany and Japan are linking market declines to the Coronavirus. Yahoo Finance’s Akiko Fujita asked Simpson, “at what point do we connect the dots and say this isn’t just a story about China anymore?”

Simpson shared that his firm has taken a little bit more of a defensive posture.

“Markets seem to be sailing along. There was maybe one day where it impacted markets in a big way, and one week where we were down, but for the past two weeks, markets have been appreciating. The idea that it’s not as deadly as SARS is a great thing, but the fact that we’re seeing impacts with Apple in terms of production, and that plants are not re-opening to the extent that they had hoped, this could have a bigger toll for every day that it goes on.”

Fundamentals in U.S. Strong

As the U.S. is continuing to see new highs, Fujita directed a second question at Simpson regarding market volatility, and asked his thoughts on what could impact the market, if not for the Coronavirus.

“One would be higher rates, which I don’t see happening,” replied Simpson. “The second would be higher oil prices, or obviously, the elephant in the room – the presidential election. The market doesn’t like change. The economy of things are in a good state, and Wallstreet would like to see that continue.”