We’ve addressed the evolving situation around coronavirus/COVID-19 in both our podcast and a previous blog. However, given the ongoing effects that concern the disease are having on both the marketplace and the zeitgeist, we’d like to delve into it again. In brief: our current circumstances are best approached with a calm and rational mind and best addressed by careful planning.
Stay the Course
We understand this can be difficult. Watching the rapid spread of the disease and the growing number of shutdowns, cancellations, and quarantines can be disconcerting. Watching market instability and a record-setting drop in the Dow can be off-putting for both investors and business owners. However, we are going to recommend a steady hand and a “stay the course” mentality as we collectively move through these events. While things are unstable now, instability is a tool and when used properly offers us the opportunity for profit and growth on the other side. In many ways, this has already started—as of the time of this writing we’re seeing a return to stability in global markets. This is in part fueled by wise investors who rightly see this moment as an opportunity rather than a crisis.
Make Smart Moves
When we review market history and similar moments of instability over the last several decades, a pattern becomes apparent: markets tend to rebound strongly over the 12 months following such a crisis. From Black Monday in 1987 through the Asian Monetary Crisis, the tech bubble and the ‘07 -’09 financial crisis periods of positive market performance follow. Whether or not this represents a huge buying opportunity depends on your individual situation and your needs; certainly, such opportunities exist in various forms throughout the current circumstances.
The huge opportunity loss will come for investors who pull out of the market, even temporarily. Withdrawing from trading and missing some of the top-performing days which follow a crisis can cost big bucks in the long run. At a minimum, staying invested is the wise course of action right now. Keep your money in place and your investments alive and ride this thing out. You’ll likely reap benefits on the other side.
Stay on Course
There will be changes of course. The effects are far-reaching both intentionally and over time, and we’re still sorting through them. Much remains to be decided, and ongoing responses from both government and industry will determine a great deal. The facts have changed since December, economic damage (particularly in vulnerable sectors) is real, and the market needed a reset. Often, though not always, following a market shock, stocks tend to establish a new trading range. This happens before investors can assess the changed situation and begin to position for what they believe is next.
After summer 2011, when the S&P 500 crashed from 1,350 on the debt-ceiling battle and U.S. sovereign-debt downgrade, the index range-traded 1,150-1,250 through the end of December. The summer 2015 selloff featured a “fake” recovery in fall. This occurred before the market fell to new lows on worries over Chinese GDP and crashing oil prices. By contrast, the fall 2018 crash, on too-aggressive Fed policy, featured a V-bottom and quick recovery. Fed policy won’t cure this disease and we would expect stocks to seek a new range in which to trade.
Keep Calm and Carry On
As we’ve said before, a cool head and rational planning are your best tools right now. If we keep calm and view this for the opportunity that it is, we’ll all be much happier on the other side. We’ll continue to update you as the situation changes. Stay tuned to our blog or listen in on our podcast for our future thoughts on this and other matters relating to markets and finances. Until then, stay the course and make good decisions. Feel free to reach out to OmniStar if you have any worries or questions during this time.