The coronavirus first gained national attention in December 2019, with its onset in Wuhan, Hubei Province, China. While investors initially paid little attention to the outbreak, it’s now become part of daily news with over 81,000 confirmed global cases leading to volatility in the overall markets worldwide. While there’s been a remarkable amount of market movement over the last two months, it’s important to note that, amidst the lows, the S&P 500 also reached an all-time high on February 19th and was up 5.1% year-to-date.
Time after time again, the market powers through uncertainty.
Reference the chart below and take, for instance, the Ebola outbreak in 2014. The market dipped to -14.35% at its max drawdown point, but 12 months later, it was up 10.44% from the initial impact on the market .
Currently, people are reacting by actively reducing their risk of exposure to the coronavirus, which historically has led to slowdowns in economic productivity. While this epidemic is a problem, these reactions to the fear surrounding it could have an even greater impact on the market. That being said, what can you expect going forward?
Expect Volatility to Continue
Many reporters state the current markets are dipping in response to coronavirus, but, the truth is that we’ve been due for a market correction for some time. While the epidemic is unexpected and being monitored closely as it changes, the dips we’ve seen from the market volatility this year are normal for market corrections. Consider for instance, that only 7 days after the S&P 500 hit an all-time high, it dropped to -7.6% (as of 2/27) year-to-date from being up 5.1% year-to-date. While many investors focus on the current volatility and the short-term market sell-off, the tend to focus less on the big picture — year to date returns. Take a moment to reference the chart below from First Trust — over the last 10 years, we’ve seen numerous pull-backs, corrections, and market runs amidst various global events. The most important thing to remember during market volatility is to stick to your long-term investment strategy and don’t overreact.
The WJA Response
- Tax-loss harvesting - For many of our clients, the recent market losses offer tax-savings opportunities, so we’re looking at harvesting these losses to offset taxable gains. Read more here.
- Refinancing & Mortgages - The 10-year US treasury is at an all-time low making mortgage loans and refinancing attractive. For many of our clients who are looking at buying new homes or refinancing their current mortgage, we’ll be discussing their options and how the excess cash or cash reserves on the sidelines can be maximized.
- Waiting to Invest? - If you've been holding cash in the bank account and are wondering when is the right time to invest it, now, as equities are falling, may be the right time to think about buying or rebalancing your portfolio.
- Upcoming Webinar on Investment Strategies - WJA President, Nick Johnson, CFA®, CFP®, will be presenting a webinar in a few weeks on how to make strategic investment decisions after major market movements (like this correction and the volatility from pandemics) and the biggest mistakes we see investors making. Learn more by clicking here.
When the markets dip like this, many of our clients ask if now is the time to sell stocks, move to cash, and wait for it to blow over. Our answer remains the same: don’t overreact— stick to the plan you have in place and continue monitoring for opportunities. During times of market volatility, our investment team has models in place with buying and selling triggers for stocks, and they are keeping a diligent watch on the markets for opportunities that only time will tell.
We’re not here to predict the impact coronavirus will have on human lives or on the stock markets. We do know from history that feared uncertainty such as virus pandemics tends to garner volatility that leads to more pronounced stock fluctuation.
At Willis Johnson & Associates, we work with our clients to ensure their portfolio considers their personal needs and financial risk exposure to get the maximum amount of savings. As part of our comprehensive asset management and planning process, we sit down with clients regularly to review your portfolio(s) and assess market conditions, educating you on your options and assisting you in making the changes necessary to optimize your specific situation. If you have any questions, please contact your advisor, or schedule a free consultation with one of our experts.