Fears intensified around the global spread of the coronavirus and markets experienced their swiftest drop in history at the end of February, wiping out this year’s gains.
All major market indexes lost ground. In the US, the tech-heavy Nasdaq 100 lost -6.1%, the S&P 500 fell -7.9%, and the Dow Jones Industrial Average sank -9.6%. The small-cap Russell 2000 lost -8.9%.
The developed-market EAFE Index fell -7.8%, while, surprisingly, emerging markets held up best, down -3.8%.
Bonds, on the other hand, were up. With all the focus on the coronavirus and the stock market fallout, you may have missed that interest rates fell sharply in February and bonds, particularly intermediate-term bonds, surged.
What to do now if you’re feeling nervous?
Remember that the stock market tends to recover well from crises.
According to First Trust, there have been 12 major epidemics or outbreaks over the past 40 years. The S&P 500 averaged a -6.1% drawdown during the first six months and gained over the next six months, with an average price return of 8.8%.
Recognize that volatility could continue.
US markets had a strong bounce on the first trading day of March. This is not likely to mark the end of volatility for now, and we may not have seen the worst of the market’s reaction to the epidemic.
Stick with your plans.
We see no reason to change a long-term investing strategy because of the crisis. No one can dispute that millions of people are impacted by coronavirus. But as investors, we must divorce the emotional reaction to the human crisis from the investment policy analysis.
While short-term market action has emotional impact, investors are far better off positioning for the long-term and riding out near-term pullbacks, whatever the triggers. Most of our clients are investing for retirement and their allocations have been designed with that in mind.
Work with an advisor who can help you stay on track.
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