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Staying the Course – Coronavirus and Stock Market Volatility

CORONAVIRUS UPDATE

It's now more apparent than ever that the COVID-19 virus situation is likely to have a lasting impact not only in the markets, but in our personal lives as well. I wanted to bring you some historical information that we have on other outbreaks and their effect on markets in the past, but there is also some information on our business continuity and practices during this uncertain time.

1. We are here for you.

Every advisor in our office has the ability to work remotely and we can meet with you remotely through our encrypted Zoom video conferencing software. Each and every one of our advisors is committed to supporting their clients and answering any questions you may have. Don't hesitate to reach out to us by phone or email if you have concerns. If you aren't currently working with our office and would like a consult, schedule a 30 minute call and we can discuss your situation.

2. We may not all be at the office...

But we are still connected to all of our systems. Business continuity as not been impacted and all of our support systems (product specialists, backoffice personnel,etc.) are also prepared to and/or are actively working remotely. While some of the advisors in the Bellevue office are working from home, others are committed to being present in the office. Call your advisor if you have questions or want to meet and they will explain what their availability looks like.

3. Keep calm.

We're not just talking about the markets, but in our personal and professional lives too. Now is the time to take a deep breath and assess what the next 6-12 weeks might look like and calmly prepare for the journey ahead. Although the schools in King, Pierce, and Snohomish counties are closed, the impact of the virus will likely be felt longer than that. We encourage you and your family to follow the best practices and guidelines put out by the CDC, King County, and other governing officials. Take care of yourselves individually and your families, and we will get through these challenging times as a community.

Where are we today

According to the CDC,1 the recent coronavirus (COVID-19) outbreak has claimed almost 5,000 lives and impacted nearly 132,000 people worldwide as of March 12th, 2020 and it has also injected a sense of uncertainty into the markets. If you’re invested in the stock market you may have found yourself sitting on the edge of your seat over the last few weeks as we watch market volatility increase.

We are here for you and we want to take a moment to update you on our thoughts related to the coronavirus, its impact 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

Why is it important to take a look back in time? While there are no guarantees the current situation with COVID-19 will follow a similar pattern to the above epidemics, it helps us to better understand and put into perspective that historically over long periods of time, despite an epidemic, stocks typically regain their upward trajectory. 

Market Psychology

As we explored above, all assets rise and fall in value and the more extreme the swing, the stronger the sentiment. 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 important to have perspective and remember that swift market drops are not unusual. Of course, the headlines are scary and fear of the unknown is scariest of all, but the nature of the market is that 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. 

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. And always keep in mind that in 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 advisor 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. 

Sure, fear is a natural emotion to encounter during turbulent times especially when a health epidemic hits like a virus that can impact both your health and your finances. 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. 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 something we can control. It’s not fun seeing 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.

  1. https://www.cdc.gov/coronavirus/2019-ncov/cases-in-us.html

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.