We have been spending a lot of our time talking to portfolio managers, economists and market strategists with decades of experience, to get a handle on what has been going on in the stock and bond markets. Although we haven’t seen a market sell off due to a pandemic on this scale in our lifetime, there have been lots of other ‘never before seen’ events. Just think back to the 2008 market rout. Lots of folks thought that was the end of making money in markets too. Then, the S&P went up 26% in 2009. Of course, everyone wants to know when it will end and when the market will rally.
What markets hate is uncertainty. So the fact that no one knew how COVID-19 would spread nor how to limit infection rates makes people nervous. How long it would take for the virus to complete it’s move through a population was also unknown. On top of that, the markets are looking for direction from the U.S. executive office (the President) on how the government is going to respond. Add to that the jostling going on between Trump and the Saudis over oil production it is kind of a perfect storm of worry for markets. Rest assured, governments will do whatever they need to do to get the market to go back up again. Trump wants to get re-elected, so at some point he will be forced to take measures to quell the uncertainty. There are many tools that governments have to combat this – decrease interest rates again, pump money into government spending projects, supporting businesses to see them through this short term hit, and putting more money into health care to suppress fears that this virus will spread even further.
The response by many governments including our own has been extreme but is proving effective. China seems to have turned the corner on new infections as has South Korea. Things are starting to return to normal in those two countries. One has to ask oneself, when this is all over in the coming weeks, will the way we live around the world change? Not likely. Once this is a memory people will go back to consuming, travelling, working and living their lives.
We build portfolios for our clients to withstand these events. If you are in the stage of life that you are relying on your funds for income, you will have several years of income in cash. You have lots of time to make up any short-term losses. If you are in the accumulation stage of life, then this presents an opportunity. Your portfolio managers are actively buying stocks while they are on sale. This is the time to think about adding money to your investments, or at least staying the course.
If you are interested in reading a more in-depth insight into this market volatility, and historical data from the many times before that we have experienced these kinds of markets, please click here to read an article for our insights team.
Hang in there.