Keep Calm and Carry On

Last week, previously complacent investors panicked with news regarding the spread of the coronavirus. Adding to their worries was the continued uncertainty of who will be the eventual Democratic presidential candidate and the future balance of power in Congress.

Stocks around the world posted swift, historic declines, while bond prices moved higher and yields hit all-time lows. Investors quickly forgot the outsized gains earned by both stocks and bonds during 2019. In fact, as a reminder, stock market returns in 2019 were some of the best posted in six years, while bonds posted their best gains in seventeen years.

Currently, the overall impact on the economy and corporate profits due to the virus is still largely unknown. The longer-term impact will depend on the duration and extent of the outbreak. Investors are advised that this impact is likely to be transitory, when using history as a guide.

To help lessen the short-term emotional impacts fueled by last week’s downdraft, the chart below is a good reminder of how markets rebounded longer-term after other fearful outbreaks.

We caution investors at this time not to let emotions lead their investment decisions. Stock markets have generally had pullbacks of 14% during a calendar year as indicated in the “red dot” chart below.

We remind our clients more specifically that we used gains posted throughout last year to rebalance their portfolios opportunistically to ensure that any monies needed to fund withdrawals in the next few years were not at risk of losing principal. In fact, these “safer” monies gained in value last week.

We encourage you to read the piece titled “The Year of the Virus” as published today by David Kelly, Chief Global Strategist, J.P. Morgan. His insights are quite valuable and support our thinking at this time.