I contacted all of my clients on Friday and pulled all (yes, 100%) of our clients' stock market investments into more defensive asset classes. I also strongly recommended delaying a new round of 60% stock, 40% fixed income investments to the school endowment board I sit on.
I am keeping a close eye on how the epidemic may affect our clients. While we have plans to re-enter the stock market, we will need to see specific markers of recovery that may be weeks or months away.
Why are markets so volatile?
Disease outbreaks are hard to predict and come with a great deal of uncertainty that can make investors nervous—particularly after a period of record market gains.
As this epidemic spreads beyond China, there is worry that it will cause serious disruptions to trade and the interconnected global economy.
The unfolding story of COVID-19
This coronavirus outbreak, also known as COVID-19, caused the US stock market to topple by more than 10% from February 21 to February 28, 2020, and while I do not have a crystal ball into the future, I fully expect the decline to continue.
This is worse than SARS, MERS, and Zika ever were, and they caused market corrections of 7-12% to the S&P 500. [1] Today’s outbreak is changing the way people are living and doing business around the world. American Airlines just cancelled all flights from Miami and New York to Milan [2]. Church services in South Korea are being suspended. [3] A Houston energy conference was just put on hold. [4]
In US news - coronavirus cases are just being discovered on our home soil. The first East Coast case was confirmed today in Rhode Island and the first US death, in Washington, was confirmed over the weekend. [5]
Pullbacks and periods of volatility happen regularly, for many reasons.
Whether the cause is an epidemic, geopolitical crisis, natural disaster, or financial issue, markets often react negatively to bad news and then recover, and I do expect that today’s market will recover eventually.
Sometimes, the push-and-pull can go on for weeks and months, which can be stressful, even when it’s an expected and normal part of the market cycle.
The best thing you can do is stick to your strategy and avoid emotional decision-making.
Why?
Because emotional reactions don’t lead to smart investing decisions. The biggest mistake investors can make right now is to underreact or overreact instead of sticking to their strategies.
Have questions about your personal situation? Just call the office at (929) 390-1374, leave a comment, or email me at matthew.espina@myrmidonpc.com and we’ll talk.
[4] https://www.cnbc.com/2020/03/01/markets-sunday-live-updates-awaiting-stock-futures-open.html
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