As you have no doubt noticed, the equity markets have had their worst performance week since the housing crisis of 2008. This is, of course, largely the result of the COVID-19 (coronavirus) spread and the uncertainty of it’s impact on both global populations and businesses. Uncertainty is the biggest fear of investors and generally is what precipitates large drops in the markets.
In this immediate case, the uncertainty involves how quickly the virus might spread globally, how health organizations will react to that spread, how quickly a vaccine can be discovered, etc. In addition, there are business concerns given how interconnected the world economy is: how will Asian suppliers be impacted, will consumers cancel travel and gatherings in large public spaces, will hospitals and health providers be overwhelmed, etc. All of these are legitimate questions that will only be accurately assessed in time.
There is an old Wall Street saying that markets take the stairs up but the elevator down. That is certainly the case at hand. As of this writing, the markets are down in excess of 10% for the week with further losses likely today. The major indices have essentially given back all of the growth since one year ago. How long will this last? I (and no one) can accurately answer that.
As you know, my entire philosophy is to focus on long term client needs and plan around those needs. I don’t like to react to every news story that drives the market higher or lower. That said, I don’t want to be Pollyanna and expect markets to recover on our preferred time frame. I recognize, as an investor myself, that the market drops are disconcerting and stressful. Unfortunately, volatility in the markets is the price investors have to pay for long term growth. I believe that the portfolios we construct give our clients the best chance to achieve their long term goals and objectives. Part of that construction includes planning around market corrections and drawdowns.
My biggest concern as a financial adviser is clients panicking and making short term decisions.. If you are feeling any of these concerns or just want to discuss the impact the market drops have on you and your plan, don’t hesitate to reach out to us.