Market Volatility – Special Update – 02/28/2020

Earlier this week we told you U.S. stock markets had been incredibly resilient during China’s coronavirus (COVID-19) outbreak; however, no market is immune to the potential volatility created by a pandemic. While the market is on pace for its worst week since the financial crisis, and we are monitoring the situation closely; historically, pandemic induced market pullbacks have been swift and rewarding to investors that stayed the course.

Some thoughts on where we are today:

• The average duration of past pandemics (SARS, swine flu, Ebola and Zika) is 35 days.
• The average market return during those outbreaks is -4.7%. We are beyond -4.7% at this point, signaling that we may be close to a near term market bottom.
• The average market return in the 3 months following the resolution to the pandemic is +23.1%! Stay the course!
• Much is still unknown about the virus which leads to market volatility. Investor can handle positive and/or negative news, it’s the unknown that can cause market volatility.
• While stocks have taken a hit (with the Dow falling over 3,200 points so far this week), bonds have increased in value causing bond yields to decline. It’s possible that yields could grind lower in the short term, reducing borrowing costs and potentially pushing money into the market.
• Low interest rates can be positive for the stock market, as rising dividend yields on stocks look more attractive.
• If you are currently pulling retirement income from your account, the appreciated bonds provide opportunity to take gains while allowing stocks time to recover from current volatility.
• Central banks have responded to prior economic and stock declines relatively swiftly by lowering interest rates. It’s very possible that we see similar action by the central banks, potentially aiding a market rally.
• Remember that as quickly as the market has gone down this week, it can rebound. Remain focused on long term goals, not short term market volatility.

What does this mean for you?

We continue to advocate sticking to long term goals. Volatility is likely to continue, creating opportunities that we have not seen in quite some time. We believe that all of our portfolios are well positioned to weather current volatility as we have maintained focus on quality companies from both a stock and bond perspective while resisting the temptation to chase high flying, speculative investments.

It can be concerning and even scary when your portfolio goes down, and with the 24-hour news cycle it is hard not to get caught up in the news of the moment. If you have any questions or concerns you would like to discuss, please give us a call.