Local financial experts urge calm - Albuquerque Journal

Local financial experts urge calm

Copyright © 2020 Albuquerque Journal

After a week of plummeting stock prices and rapidly expanding coronavirus cases around the world, local financial experts are urging New Mexicans not to panic.

At least not yet.

U.S. markets wrapped up their worst week since October 2008 on Friday as fears about the virus’s impact on international supply chains continued to grow. The

Christine McDermott

Dow Jones Industrial Average dropped 3,583 points, a fall of more than 12%. The S&P 500 Index has dropped 13% since reaching a record high 10 days ago, according to The Associated Press.

“We’re certainly concerned any time we see market volatility as meaningful or as drastic as we’ve seen this week,” said Christine McDermott, partner and chief investment officer for Avalon Trust, an independent investment and wealth planning firm with an office in Santa Fe.

In the short term, McDermott and Avalon CEO Andrew Wallerstein said they are encouraging the investors they work with to stay disciplined and stick with their investment strategies.

McDermott said Avalon has been researching how other recent disease outbreaks, including the avian flu scare and the SARS outbreak, impacted the stock market. In each case, McDermott said the stock market dipped, but recovered within six to 12 months.

Wallerstein said most of the pain will be felt by day traders and other investors who prioritize short-term earnings over long-term success.

Andrew Wallerstein

In New Mexico, where per capita income is relatively low, those short-term impacts could be felt more acutely.

“We’re not a wealthy state,” Wallerstein said.

He said Avalon largely works with nonprofits and other investors with long-term planning horizons, and he said they shouldn’t sell off assets at this point.

“As long as that long-term plan is in place, we don’t have to panic,” McDermott added.

Reilly White, an associate professor of finance at the University of New Mexico’s Anderson School of Management, agreed that market volatility is to be expected in the short term, considering how serious the coronavirus appears to be.

“I think you’ll see a lot of volatility until this gets resolved,” White said.

Supply chains at risk

White said when situations such as the coronavirus outbreak arise, finance experts expect to see an impact on travel and its related industries, and – if the situation persists – on global supply chains.

New Mexico, which tends to get a high volume of international tourists – the

Reilly White

Albuquerque International Balloon Festival, for example, draws tourists from all over the world – likely won’t be immune.

“We have yet to have the data on this, but when people have apprehension about traveling, that tends to effect us,” White said.

The gravest economic risk from a prolonged outbreak would be a major impact on supply chains.

“That is always … the true risk with a pandemic,” White said, noting that during the 1918 flu epidemic, enough people died that it disrupted the international economy.

If supply chains start to suffer, imported goods will drop and prices on those types of goods will likely increase.

“When those supply chains are disrupted, then you have price disruption for average New Mexicans,” White said.

Situation could devolve

Neither McDermott nor Wallerstein were prepared to rule out the possibility that the financial impacts worsen and devolve into an economic recession.

While today’s overall financial situation is very different than it was in 2008, Wallerstein said the U.S. is at a mature point of its growth cycle – a point where recessions sometimes occur.

McDermott added international disruption could eventually cause a more significant slowdown in an economy that’s more global than ever.

“It’s not out of the realm of possibility that we could talk ourselves into a recession,” McDermott said.

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