Coronavirus and Market Volatility Revisited

March 5, 2020

The wild ride that has been the market as of late continues. Driven by a surge in cases of the Coronavirus in South Korea, Italy, Iran, and the United States, last week was the worst week for the stock market since the financial crisis. U.S. equities dropped by double digits with the Dow Jones Index falling almost 3,500 points in just five trading sessions! For the first time since the fourth quarter of 2018, stocks experienced a correction (more than a 10% decline from their high).

However, as is often the case, the worst single days for the market are quickly followed by the best single days. On Monday, the Dow gained nearly 1,300 points, and on Wednesday, it gained another nearly 1,200 points. Those were the two biggest point gains in the history of the index. They followed a week with two of the biggest point drops in the history of the index. It’s a prime example of why timing the market is a futile endeavor.

That’s not to say we’re out of the woods. There is still tremendous uncertainty about the Coronavirus and its impact on the global economy. As we wrote to you last week, demand in the short-term will likely suffer as people cut back on spending on travel and other big-ticket expenses. Some of that demand will be deferred to later periods and some will be lost forever. Corporations will experience disruptions to their supply chains and these disruptions will likely affect earnings in the near term.

While it’s easy to panic, in times like these, being disciplined is what pays off. Here are some things to think about:

  1. Bonds: The market sell-off led to a rally in the bond market. This week, the 10-year Treasury yield dipped below 1% for the first time in history. At the beginning of 2019, the 10-year Treasury was yielding 2.66%! What does this mean? It means that bonds are doing what one would expect them to do when there is stock market volatility. They are acting as an anchor, a risk mitigator, and an excellent diversifier.
  1. International stocks: A notable thing about this past week plus has been how international stocks have outpaced U.S. stocks – that is to say they’ve lost less. Given that non-U.S. stocks were far less expensive than U.S. stocks prior to the pullback, the performance difference is not all that surprising.
  1. Rebalancing and Tax Loss Harvesting: Volatile market environments and market corrections create opportunity to both rebalance portfolios and to harvest losses that can be used against future gains. We are always looking for these opportunities but are even more diligent in times like these.
  1. Financial Planning: While it’s easy to get caught up in the short-term market gyrations, it’s important to take several steps back and focus on the long-term. The financial planning that we do for you specifically accounts for all different types of market environments (good, bad, and in between) when computing the success of your plan. Volatile markets can be unsettling but if your plan remains successful, that’s what’s important.

While we may continue to experience big ups and downs over the weeks to come, at some point, the Coronavirus will run its course and things will settle down. If markets fall again, it can be a great time to revisit some things that may be on your mind like Roth conversions and investing extra cash. Please don’t hesitate to reach out if you have questions and concerns about your portfolio or would like to revisit/update your financial plan.

For more information related to how the markets are being affected by the Coronavirus:

Coronavirus – The Market Says It’s Supposed to Get Worse

Coronavirus Uncertainty Leads to a Bear Market

Handling the Hard Times

Thoughts on The Downturn