Posted: Brandon Arns
The spread of Coronavirus and its impact on our health and the economy are increasingly becoming a more serious concern. We’ve reached more than 82,000 confirmed cases and the virus is continuing to spread globally, including in the U.S.
Predicting what the next several months look like is impossible, but it’s clear that the market is pricing in some serious economic concerns. As of 2/27, the market lost 12% from its all-time highs in just 6 days, which was the fastest 10% correction in history.
Another gauge of investors rushing to safety is that the 10-year treasury yield is at an all time low, coming down from around 1.63% to 1.16% as of this writing.
To what degree the correction is unwarranted panic selling or justified fears of an economic slowdown, is difficult to distinguish. Obviously, any investor would love to know if the pain has already been taken, and this is a great buying opportunity, or if there’s more pain to come. The Coronavirus has and will certainly continue to impact global travel, trade and production, especially in China.
As for what you should do in response to the market sell off, our recommendation has and continues to be broad diversification. The suddenness for how the market has fallen in the last week is additional evidence for how unpredictable markets are. Keep in mind stocks were up about 20-30% in just the previous year.
Any attempt to either sell now, or buy the dip, is a bet that you know something the collective market doesn’t. If you are buying, you are explicitly saying that the market is overestimating the economic impact of the virus and vice versa if you are selling.
However, if you balance out your stock exposure with investments that either are not related to, or can do well in the face of market volatility, then you don’t have as much to worry about. Maybe instead of being down 15% like the market, you are down half that.
We will continue to monitor the Coronavirus situation and make any additional changes to portfolios as necessary. If you’d like to stay up to date with the status of Coronavirus, please visit https://www.cdc.gov/coronavirus/2019-ncov/summary.html