“The stock market takes an escalator up, and an elevator down.”
Classic Wall Street Saying.
The last week has sure felt like taking an express elevator down, as the end of February brought a historic stock market sell-off, with the S&P 500 Index moving from an all-time high to a 10% correction in only six days—the quickest such move ever.
To put the recent market weakness in perspective, in an average year the S&P 500 may pull back from its highest point to its lowest point 14% on average. Even in years in which the S&P 500 finished higher, it had a pullback of 11% on average.
In 2019, when stocks gained more than 30%, we saw two pullbacks of more than 5% during the year. After a historically calm stretch to end last year and start this year, larger than normal volatility shouldn’t come as a surprise. We didn’t expect stocks to pull back this quickly, but we’re still within the normal range of market volatility.
We never want to minimize the loss of human lives, but keep in mind that less than 3,000 people have died from coronavirus globally so far, compared to the nearly 80,000 people who have died from the seasonal flu this year. Also, the number of active cases of coronavirus peaked at nearly 58,000 February 17 and has dropped to less than 44,000 now, a drop of more than 24% in less than two weeks.
In addition, the World Health Organization still won’t call this outbreak a pandemic because of the extremely low mortality rate among young and healthy people.
What could be the potential economic impact? Our basic belief is that any economic disruption in the United States may be modest and short-lived. We think domestic efforts to contain the virus will be more successful and have less economic disruption than in China. The coronavirus has captured the headlines, and we do see other new events like the coming presidential election also contributing to volatility. So, while the United States is strong economically and we are long-term bullish on the United States, we do expect more volatility this year.
That being said and as difficult as this week has been, it’s important to follow your investment strategy and focus on the long term.
Know that I am here to help and answer any questions that you have along the way.
All the best,
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.