Since emerging from the 2008 financial crisis, markets can overall be considered cooperative. Stocks have continued to move higher, while falling bond yields saw fixed income investors enjoy bumper returns. Volatility remained low relative to history, and while we did see occasional spikes these moves were typically short-lived. Both the rapid nature of the recent correction in the equity markets and the magnitude of daily market moves seen in prior weeks have understandably caused investors to become concerned. But its important to realize that corrections and to an extent even bear markets are not rare events.
We know that the long-term trend of the stock market is up, and that timing the market in the short-term is a difficult if not impossible task for most (one of the reasons we often dollar-cost average). Fear and greed are powerful emotions however and can cause investors to abandon logic in their decision making. We understand how nerve-wracking it can be when markets endure significant declines like that seen in recent weeks, but your asset allocation is designed to keep you invested through choppy waters and meet your long-term goals.
Thoughts Moving Forward
The situation involving COVID-19 remains extraordinarily fluid at this point in time, with new developments around the clock (I have effectively re-written this document multiple times over the course of the past five or six days), making it even more difficult to predict short-term market moves. As discussed earlier, we expect the outbreak to continue to spread in the coming weeks and anticipate a steady stream of negative headlines; risk is skewed to the downside in our view. Markets will likely endure extreme swings as investors attempt to discount the epidemic’s impact on the economy and asset prices, but until infections have peaked it might be more of a “blind leading the blind” environment where the knee-jerk move is to overreact. In the meantime:
- We would encourage investors to take a longer-term perspective on markets; although scary, the COVID-19 epidemic is not a doomsday “end-of-humanity” type scenario, and the global economy and financial markets will get past it eventually.
- While at this point it appears that recession is the base case, don’t automatically conflate a recession or bear market with what happened in 2008, which was atypically severe and prolonged.
- Your asset allocation was designed to keep you invested through periods of market turbulence like we are currently experiencing. However, we realize that staying the course can be uncomfortable in moments like this and are happy to set aside time to revisit and discuss your family’s investment plan.
*The above article is an excerpt from our recent client market update. Our investment team welcomes any calls to discuss further or expound upon this commentary.