Coronavirus Uncertainty Leads to a Bear Market
This Coronavirus (COVID-19) has continued to bring not just volatility to the market, but negativity. With the classification officially moving to pandemic on Wednesday, we’ve seen even more worry. This week alone we’ve seen the biggest point decline of the Dow ever followed immediately by over a 1,000-point jump and then another day of volatility that pulled back all of the prior day’s gains yet again. What is happening?
- There are still a lot of unknowns out there with this virus. Not all answers can be or are known yet. While medical professionals are diligently working on this, it takes time. In the absence of information, our minds can wander.
- News is everywhere – Every day, anywhere you are, there’s a new notification about someone with the virus. This hits close to home when it’s your state, your city, your town, or your school. Anytime something gets this close, we all start to naturally worry more.
- There isn’t a vaccine or “fix” yet. The uncertainty then is how far will this virus go?
The market doesn’t like uncertainty. We are clearly seeing that over the last few weeks. However, there are a couple of things to look at. The U.S. market peaked on February 19, 2020. Since then, here is how different parts of the stock market have performed:
The markets have even fallen a little further from the above as well, hitting into official “Bear market territory” on Wednesday (meaning falling by over 20% since the peak).
While overall markets have fallen, an interesting thing comes up. China, the epicenter of the virus with the most people affected so far, has “won” this time period of performance? Why? Well, a chart from Johns Hopkins can help explain:
The top line is how many cases there have been in China (vs. the other two lines being cases outside Mainland China and how many people have recovered). A huge ramp up, but as of late, a leveling off. On 3/10/2020, just 36 new cases were reported. Perhaps this is leading, at least within China, to fewer unknowns than elsewhere at this point.
On the flipside is Italy, the worst performer of the bar chart above. Why? Well, the virus hit there and has spread a ton without signs of slowing down yet.
Where are we in the U.S.? The virus has now spread to over 1,000 people and is continuing to increase. As a result of actual diagnosis and worries about contracting and spreading the virus, businesses and people are adjusting. They are traveling less, shopping less, and just plain old doing less. Businesses themselves are making adjustments to work location policies and production targets. All of this adds up to at least a temporary economic slowdown. Combine this with the worry of the virus, and we see the markets here doing what they’re doing.
We are confident that eventually, the markets will be higher than they are today. They will recover. What we don’t know yet is where the bottom is. It could be now; it could be some time still. However, in periods of prior volatility, here is how the markets have rebounded over time.
Market Returns After Downturns
Downturns hurt when they’re happening. But what has happened is already in the past and can’t be controlled. Going forward, the statistics are in your favor.
More uncertainty looms in the short-term but know that any bonds you have in the portfolio have been holding up extremely well and can get through this until the stock portfolio inevitably comes around. And while we wait, we’ll continue to review for rebalancing and tax trading opportunities that may continue to present themselves to position you even better going forward. If you have anything on your mind you’d like to discuss, please don’t hesitate to reach out.
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 and Market Volatility Revisited
The S&P 500 Index includes a representative sample of the largest 500 companies in the U.S. The MSCI Emerging Markets Index (SM) is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The MSCI® EAFE (Europe, Australia, Far East) Net Index is a benchmark in the US to measure international equity performance. It comprises 21 MSCI country indexes, representing the developed markets outside of North America measured in U.S. dollars. The MSCI China Index is constructed based on the integrated China equity universe included in the MSCI Emerging Markets Index, providing a standardized definition of the China equity opportunity set. The index aims to represent the performance of large- and mid-cap segments with H shares, B shares, red chips, P chips and foreign listings (e.g., ADRs) of Chinese stocks. China A-shares will be partially included in this index, making it the de facto index for all of China. It can be used as a China benchmark for investors who use the MSCI ACWI Index or MSCI EM Index as their policy benchmark. The MSCI Italy Index is designed to measure the performance of the large and mid-cap segments of the Italian market. With 24 constituents, the index covers about 85% of the equity universe in Italy. Fama/French US Total Return Index is an equity index that includes the market cap of the United States stock index with NYSE, AMEX, and Nasdaq.
Disclosures: Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Future performance of any investment or wealth management strategy, including those recommended by Balasa Dinverno Foltz LLC (BDF), may not be profitable, suitable for you, prove successful or equal historical indices. Historical indices do not reflect the deduction of transaction, custodial or investment management fees, which would diminish results. Any historical index performance figures are for comparison purposes only and client account holdings will not directly correspond to any such data. BDF clients must, in writing, advise BDF of personal, financial or investment objective changes and any restrictions desired on BDF’s services so that BDF may re-evaluate its previous recommendations and adjust its investment advisory services. BDF’s current written disclosure statement discussing advisory services and fees is available for review at www.BDFLLC.com or upon request.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from BDF.
Chad spends his day helping BDF deliver on its promise of helping you enjoy a full life. In addition, Chad leads BDF's Investment Committee, which oversees the strategic and tactical decisions for the firm’s entire client portfolio base. Chad is a frequent speaker and is often quoted in publications such as The Wall Street Journal, Forbes, Investment News, Smart Money, ETF Perspectives, and Dow Jones Newswires.