February 2020 Newsletter

Fears of the coronavirus caused stocks to take a tumble in February. After reaching all-time highs, the S&P 500  took a nosedive, falling more than 12% off its highs, including its biggest one-day percentage loss in almost  10-years. With the virus spreading throughout the globe, many are concerned about this being the catalyst for the next major economic recession. 

As expected, manufacturing in China fell to record lows, as the coronavirus halted production in many factories across the country. China’s manufacturing purchasing managers index fell to 40.3 on the month, its lowest reading since 2004. These numbers, while scary, are also par for the course considering the coronavirus impact throughout the country.  

Yet, through social media and news outlets, fears of the virus have spread quicker than the virus itself, making it difficult for people to discern truth from the noise. One sector which may not be very affected by global fears is technology, especially in the software business. Companies that allow for remote work and provide stay-at-home benefits to consumers and businesses — like Netflix, Zoom, and Slack — are likely to weather the current economic turbulence better than other companies. It is worth mentioning that notable companies in the defense and industrial sectors — such as General Electric, L3Harris Technologies, and PulteGroup —  have remained strong performers year-to-date despite the effects of this global crisis.  

Even before the coronavirus outbreak, the European economy was struggling to keep pace. Demand across the Eurozone has steadily decreased and could fall to lower than 1% in the year. Brexit has come back into the news, as the EU and UK are working on a post-Brexit trade deal. For now, it appears such a deal is hard to come by, with leaders on both sides warning it could take another six months before a deal is reached. The biggest sticking point for the EU is a “level playing field”, which would ensure that there remains fair and open competition in the region.  

Source: ​ https://www.bloomberg.com/news/articles/2019-02-15/there-s-a-weak-link-in-the-global-economy 

While the coronavirus continues to take center stage, we believe the media is creating a mass hysteria that has bled into financial markets. Yes, the virus is to be taken seriously, and in the short-term could continue to negatively impact markets. However, it is also very likely that the epidemic is kept under control and managed in a way that brings stability back to the global economy quicker than expected.  

We will continue to monitor the economic climate as it changes over the coming months.  Please contact our team if you have any questions.  

Warmest Regards,  

David Adefeso

References: 

https://www.barrons.com/articles/tech-stocks-could-shine-if-coronavirus-forces-employees-to-work-from-home-51582 936006 

https://www.marketwatch.com/story/dow-sp-500-enter-correction-territory-as-stock-market-selloff-rolls-on-for-6th-str aight-day-2020-02-27 

https://www.cnbc.com/2020/03/01/coronavirus-is-significant-threat-to-economy-and-trump-mark-zandi.html https://www.cnn.com/2020/03/02/business/oecd-global-economy/index.html 

https://www.nerdwallet.com/blog/investing/best-performing-stocks/

https://www.cnn.com/2020/03/01/economy/china-pmi-economy-coronavirus/index.html https://www.bloomberg.com/news/articles/2019-02-15/there-s-a-weak-link-in-the-global-economy https://www.bbc.com/news/51180282

Legal Information and Disclosures 

David Adefeso is the Chief Executive Officer of The Pacific Group. He oversees all aspects of the firm’s operations. Prior to The Pacific Group, David worked as a Wall Street Investment Banker with Wasserstein Perella & Co. and Salomon Smith Barney. There, he executed large and complex merger & acquisitions and corporate finance transactions for some of the world’s largest companies. His client base included Aetna US Healthcare, Magellan Healthcare, Allegiance Corp., HealthSouth, MedPartners, Snapple, Interpool Inc., Indigo Aviation, American TransAir, and BlueCross/BlueShields of California, Kansas City & Missouri. Prior to investment banking, David worked as a Certified Public Accountant. He attended Harvard Business School where he graduated with an MBA. Disclaimer: The views expressed are the views of David Adefeso through the period ending February 28th, 2020, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities.

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