As we continue to monitor the market as a whole and its effects on portfolios, I wanted to give some thoughts on the current coronavirus crisis in the financial markets. While we believe the virus itself is not particularly dangerous to most people, its effects on the economy are becoming harder to quantify. As I mentioned recently, most of the U.S. economy is driven by consumer spending. This is unique compared with other countries, as other economies are driven by things such as oil (Saudi Arabia, Russia), tourism (Europe, Caribbean etc.) and manufacturing (China). The effects of the virus have and will continue to cause a decrease in most spending related to things such as travel, entertainment etc. It will also increase for consumer staples like paper goods, grocery sales etc. Overall, spending will decrease and that is not a good sign for the economy. To date, the market has seen tremendous volatility over the last three weeks, with 4% to 5% moves happening daily in either direction.
Here are some things we need to consider:
Year 2019 we saw tremendous gains in the S&P 500, with 30%-plus returns and in the Dow Jones Industrial Average 22%-plus returns. The Dow is currently at nearly the exact same level it started at in the beginning of 2019. Therefore, it has only given back 1 year of a decade of strong performance.
So far in 2020, the S&P 500 is down over 15% and the Dow Jones Industrial Average down over 17%.
How far will the markets continue to fall? Unfortunately, nobody knows that answer. What we do know is that regardless of why the markets fall, historically, they have always returned to record highs, and we believe this time will ultimately be no different.
If we move to cash, when do we re-enter? Getting out of the market might seem like an easy choice, but when do you get back in? Missing the recovery is often far more painful than the decline itself.
Will the market rally as quickly as it declined? History shows us that while we don’t know how fast markets will recover, we believe that they ultimately will recover. I think while this decline has been fast and severe, I do not believe it will be long lasting. I would expect a recovery before the end of the year, and it is my belief that markets will be higher 12 months from today than where they are now. Of course, while there are no guarantees that will happen, it is certainly my belief that will happen due to this drop not being tied to any fundamentals but rather due to a virus which may be limited in scope.
The ongoing events are a great reminder that stocks do decline. If you are worried, please take a moment and review how you are positioned. If events like these cause you to panic, then it may be time to reposition your portfolios. Others will see this as a buying opportunity with stocks deeply discounted.
I recommend staying true to plan but I understand a desire to adjust. Please keep in mind the considerations listed above if you decide to make any changes.
T. Eric Reich, CIMA, CFP, CLU, ChFC is president and founder of Reich Asset Management and can be reached at 609-486-5073 or email@example.com.
This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS.