Staying the Course – Coronavirus and Stock Market Volatility
As of March 12, 2020, the the CDC1 reported that the current coronavirus (COVID-19) outbreak had claimed almost 5,000 lives and impacted nearly 132,000 people worldwide. Along with the concern for individual health, this pandemic has also injected a sense of uncertainty into the markets. Many of you who have invested in the stock market have probably found yourself sitting on the edge of your seat as we watch market volatility increase.
Our team of advisors is here for you and we want to take a moment to update you on our thoughts related to the impact of the coronavirus on the financial markets, and, ultimately, on your personal financial situation.
A Brief History Lesson
The market’s negative response to health crises is nothing new. The below table shows that since 2003, approximately six months after early reports of a major outbreak, the S&P 500 bounced back by an average of 10.47 percent. After 12 months, it rebounded by an average of 17.17 percent.
| Epidemic | Month-end* | S&P 500 6-month performance | S&P 500 12-month performance |
|---|---|---|---|
| SARS | Apr. 2003 | 14.59% | 20.76% |
| Avian (bird) flu | Jun. 2006 | 11.66% | 18.36% |
| Swine flu (H1N1) | Apr. 2009 | 18.72% | 35.96% |
| MERS | May 2013 | 10.74% | 17.96% |
| Ebola | Mar. 2014 | 5.34% | 10.44% |
| Measles/Rubeola | Dec. 2014 | 0.20% | -0.73% |
| Zika | Jan. 2016 | 12.03% | 17.45% |
Source: Dow Jones Market Data, cited on MarketWatch.com February 24, 2020.
*End of month during which early incidents of outbreak were reported
It may seem insignificant to look back in time, especially when acknowledging that each health issue is distinct from another; however, a backward-facing view does allow us to better understand and put into perspective that historically over long periods of time, despite an epidemic, stocks typically regain their upward trajectory. While there are no guarantees the current situation with COVID-19 will follow a similar pattern to the above epidemics, we can observe history and make adjustments accordingly with what are predicted patterns.
Market Psychology
As we have all experienced in our own lifetimes, assets are bound to rise and fall in value through the years. Unfortunately, the more extreme the swing, the stronger the reaction tends to be. Overcoming this market psychology is no easy feat but learning how the market works can help to reduce stress and increase your ability to “stay the course."
Your investments are designed to support your long-term objectives, not today’s needs. In situations like this, it is difficult but crucial to have perspective and remember that swift market drops are not unusual. The headlines may read of frightening unknowns for our health and finances, but we must remember that the nature of the market is to not remain a straight line. It will go up and down. That is just par for the course.
When you think about it, our emotions share a similar reaction between excitement and depression. Surges of pleasure with favorable uptrends and neurotic negatives with declines. Unfortunately, emotions can be drivers for selling early thus diminishing significant gains that can occur over the long-term.
In this current market, we believe the best response is to acknowledge what you’re feeling, reach out to us if that would be helpful, and have confidence that we are on top of the situation. Also, remember the short-term market movements can be heavily influenced by headlines and computerized trading; but, in the long term, markets tend to reflect broader-based economic trends. One of our most important roles as your trusted advisors is to not let the difficulties of the short term prevent the reaping of potential benefits of sound, long-term investing.
What Should You Do?
The answer is simple: Don’t panic.
Yes, fear is a natural emotion to encounter during turbulent times. The unknown of health, finances, education, employment, and so much more can cause anxiety to skyrocket. But, we must remember that when market corrections occur (classified as a drop of 10 percent or more in one of the major U.S. stock indexes) the media tends to add fuel to the fire and not all that we see is exactly as it should be. It’s important not to make any alarm-induced moves during a correction. Instead, stay vigilant and stay the course.
Acknowledge that the market is not just about winning and losing – it’s about strategy and duration. The virus and how it spreads is completely out of our control, but our reaction to the financial markets is not. It’s not comfortable or encouraging to watch your portfolio drop, but at the same time, we know market volatility is normal and expected. The key is to “zoom-out” and look at the long-term big picture.
What We’re Doing
What we do know for a fact is that the market will continue to do three things: It will sometimes go up, it will sometimes go down, and sometimes it will barely budge. The other absolute certainty? Your financial well-being is our number one objective.
Our team is burning the midnight oil to monitor the situation as it unfolds and recommending actions as appropriate.
And we will leave you with one final piece of good news: sometimes, situations like this can actually create opportunities. For example, as prices drop, we will also seek out any opportunities to “rebalance” and shift your asset allocation if it aligns with your long-term goals.
If you have any questions about your specific situation, please contact us. We are here to help and we are here for you. Thank you for your continued trust and confidence.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
