To say that we live in interesting times would certainly be an understatement. Fears of the Coronavirus—which most of us had not even heard of 90 days ago, continue to grip our world, with the rapid decline in the stock markets and oil prices adding fuel to the fire. This has been a very quick decline, and changes of this magnitude understandably instill fear. Unexpected disruptions to our very lives have been the most disturbing, and social media has succeeded in spreading these fears—in real time.
So, while this storm is fierce, it will play out eventually. We are now hyper-aware and major changes to our behavior (hygiene, travel, staying home) should help reduce the spread. Eventually, as the threat subsides, confidence in the world as we knew it will be restored and our lives will resume.
As with any major market decline, proper perspective is crucial to weathering the storm, which will not likely be found on most news stations.
I will attempt to share some observations from my experience, which includes the Savings and Loan Crisis of the 1980’s, Y2K and the dot-com bubble in the 1990’s, 9-11 and the ensuing recession in the early 2000’s and the financial crisis of 2008.
The first point is volatility of the markets. We have just seen large drops in major markets which is very unfamiliar to us. Having just completed the longest bull market (rising) in history, our sensors were not expecting a drop of this degree. Pullbacks are expected every couple of years, and even healthy for the markets, but we have not seen anything like this for over a decade, so the surprise and fear that we are now experiencing is understandable, especially when coupled with dire health updates and event cancellations in constant motion.
However, keep in mind that the markets were in record territory only a few days ago which begs the question: why? The answer can be found in the strength of the economy. Corporate earnings have been very strong fueled by the fact that more people have been working than ever, which means they have had a paycheck to spend--and they have. Additionally, interest rates are now at record lows making home ownership as well as vehicle purchases very affordable. Lastly, fuel prices have dropped significantly—I paid $1.97 per gallon of gasoline just this morning! These savings have helped create a vibrant economy which should help withstand the recent disruption to our lives and economic growth over time.
Finally, as most of our clients already know, my tendency to react to sudden changes in market winds is very low. Over the past few years, we have frequently and diligently established proper risk levels and investment balance for each client during our account reviews and conversations. Further, with a long-term perspective, I have utmost confidence in the world class money managers at the helm of our various portfolios. While the impact of the virus on human life is of our deepest concern, I believe this experience will make us stronger and better.
As always, we are available to discuss your thoughts and concerns, and remember—remaining calm and staying the course is always a good idea—cooler heads must prevail!