News headlines around the world are being dominated by the spread of Coronavirus. While this disease is very serious, I want to focus on the impact to investors and financial markets. As you know, stocks have reacted negatively to the virus outbreak. As of March 3rd, the S&P 500 is down over 10% in less than a week and a half, and the Dow Jones Industrial Average has had both a daily decline and a daily increase of over 1,100 points.
During times of high volatility like this, I think it is important that we have some perspective. This is not the first virus outbreak that we have seen, and it probably will not be the last. We have been invited by financial media to suspect that the blended value of 500 of the largest, best financed, most profitable businesses in America and the world has “lost” ten percent – with more “losses” to come – all due to the outbreak of this coronavirus.
Permit me to doubt this, and to suggest that you – as goal-focused long-term investors – join me in doubting it. Please see the chart below on past epidemics and market performance.
As you can see, stock markets have quickly forgotten past epidemics and moved higher in most cases. Maybe this decline is all due to the coronavirus, but I can’t help but feel this is a convenient reason for investors to sell stocks and lock in some gains after a 31.39% increase in the S&P 500 in 2019. Regardless, history says any market impact is short lived. The Federal reserve also cut interest rates March 3rd in an effort to provide a boost to the economy.
I am not a health expert and do not claim to have any idea how far this outbreak will spread, nor how many lives it will claim, before it is brought under control. I’m reasonably certain that many (or perhaps most) of the world’s leading virologists and epidemiologists are working on it, and I believe that their efforts will ultimately succeed. Clearly, this is nothing more than my personal opinion. The best advice I can give you involves two things. First, stick to your long-term financial plan. If you have cash that we are planning to invest, you have probably heard from us about putting some of that to work during what is likely a temporary decline. If you have cash needs, we will likely take that from fixed income (think bonds) until the market comes to its senses. And second, turn off the television.