When we warned 2020 might be an especially volatile year for stocks, this is not exactly what we had in mind. However, due to the 24 hour news cycle, COVID-19 (aka the coronavirus) is a concern for many people, including investors. Mind you, this is a serious epidemic and we are saddened by the loss and suffering that so many people have already endured.

As the number of infected people continues to grow, so might our anxiety about the spread and potential impact of the virus. While we don’t know how many people the virus will infect and the length of this viral cycle, we do know that you may have some questions about how this might impact your investments. While the medical and scientific community is challenged by the disease, the United States, capitalism, and the markets have survived every other epidemic in history . . . and we will survive this one.

While the net-effect to the global economy won’t be known for months, we expect global GDP to decline with the Fed possibly cutting interest rates twice more before the end of the year, and then the economy accelerating again due to pent up demand. The probability of a recession in the United States in 2020 remains low. The markets could continue to trade down and that will just give patient and disciplined investors such as ZRC more opportunities to profit.

Only a few clients have contacted us with concerns and for our perspective. We commend the rest of you for knowing that all of us at ZRC Wealth Management are monitoring the situation, and your investments, very closely. We commend you for staying focused on what you can control and what matters most. Even still, we feel it’s important to highlight ten points that put the current events into perspective and remind clients of what it takes to not only survive, but thrive, through periods of emotional and financial turmoil.

  1. The coronavirus has introduced uncertainty into the global economy to a degree greater than we had envisioned and as humans, we don’t like uncertainty. It triggers an almost caveman-like “fight or flight” response.
  2. In seeking safety and certainty, investors often respond by selling out of riskier assets in favor of safe havens. This is usually the wrong action to take.
  3. Don’t give in to the urge to take action. The news stories about the virus can be downright scary, but we need to remember that market prices react immediately to both good and bad information. Currently, investors and the market are trying to make sense of something that can’t be made sense of. To potentially make money or avoid potential losses, we would need to trade before it is news. And, of course, we don’t know the future, so any action would be a guess, and any positive result would be luck.
  4. As we write this, 85% of Starbucks roughly 4300 stores are now open in China – a sign that conditions in China are improving. One antiviral drug (remdesivir by Gilead) is already being tested on people to lessen the symptoms of the coronavirus.
  5. We need to keep perspective. This isn’t the first new virus we’ve seen, and this won’t be the last. SARS, Zika, H1N1 and others have all come and gone. While the concerns at the time were the same (e.g., How quickly will it spread? Will there be a cure? Will it slow down the global economy? Will it impact my investments?), our society has figured out how to overcome past viruses, and markets have done the same.
  6. Although the S&P 500 and Dow Jones Industrial Average are down more than 10% over the last five trading days, they are still above levels in early December, less than three months ago.
  7. During SARS, the S&P 500 index dropped by 12.8% and Zika saw the S&P 500 drop by 12.9%. 12 months later, the S&P 500 had risen +20.8% and +17.5%, respectively, following the outbreaks.
  8. Your ZRC managed portfolio is custom-tailored to your needs and is designed to help you persevere though such events. At a certain point, we’ll use the bonds in your portfolio to purchase more stocks. This is how to thrive during market crises. If you wait for “things to settle down” or “conditions to improve” you’ll have been out of the market for six months, a year, or even longer and probably missed a lot of the recovery. Easy to say, harder to do. That’s what ZRC is here for. Remember, it’s always darkest before the dawn.
  9. The U.S. has one of the most advanced health care systems in the world. If it comes down to needing to care for large numbers of affected people, it will be one of the times we are extremely grateful for the system. . . and less concerned about the costs.
  10. Our advice remains the same, to stick to your long-term plan and tune out the noise. We invest your money in a way that isn’t dependent on lucky guesses or get-rich-quick schemes. We use investment strategies and prepare financial plans that assume events like these will come and go. So, please, stay positive and focus on your family and your health. If you want to think about the virus, send positive thoughts toward those infected by the virus.

Below we look at the historical performance of the S&P 500 Index during several epidemics over the past 40 years. We believe looking at the market’s overall resiliency through several major epidemics can give us perspective on the benefits of investing for the long-term.

Markets have shown over their history that volatility is more the rule than the exception, and that events that prompt sell-offs tend to recede into the background over the longer term.

If you want to discuss this further, have any questions about your investments, need to inform us of family or work-related changes, or want to discuss your financial planning needs, please reach out. We are here to help you reach your financial life goals!

 

Sources: Vanguard, Buckingham Strategic Partners, and First Trust.