As you have likely noticed, uncertainty surrounding the spread and effects of Novel Coronavirus has gripped the markets. Stocks have now pulled back more than 10% from their all-time highs.
Since the peak:
There is good news within this bad news.
The bad news is that the unknown source and extent of this strain of Coronavirus is creating a mass panic. So far, nearly 100,000 people have been impacted by the disease and 2,700 people have died, worldwide. We continue to pray for those who are ill, as well as for the families of those who lost their lives.
This spread and its statistics are staggering, but it is worth noting that, during the 2018-2019 season, the CDC estimated 16.5 million people were treated for the flu in just the U.S. and more than 34,000 people died within our borders. The prior flu season saw 61,000 deaths in the U.S. Although certainly not to be taken lightly, Novel Coronavirus mirrors the flu and other acute respiratory syndromes in that it affects the very young, the very old, and immunocompromised most aggressively.
Uncertainty breeds fear and, when it comes to public safety, it is better to be safe than “sorry.” The desire to contain the spread of Novel Coronavirus has led to mass shutdowns in industry, travel and education throughout various parts of the world. Shutdowns affect nearly every facet of the economy, and many companies are feeling the pinch.
Microsoft was the latest high-profile company to publicly state it would most likely miss earnings and revenue expectations as its supply chain is “returning to normal operations at a slower pace than anticipated” after Coronavirus created a host of disruptions. Last week, Apple made a similar statement.
But there is good news. Despite all the coronavirus worries, the U.S. economy remains an oasis in the rest of the investing world. It boasts strong GDP, 50-year lows in unemployment, the strongest consumer sentiment in decades, and 20-year highs in household income. Additionally, trade deals with our top three trading partners (China, Canada, Mexico) are poised to create a massive wave of growth and prosperity for years to come.
The impact of Novel Coronavirus over the next several months is a valid concern, but in the grand scheme of things, history says this should only present a temporary setback to the 2020 market year. Of course, past performance is no guarantee of future results, but history can still provide some valuable insight…especially when it comes to the market’s reaction to downturns.
Since 2008, there have been 14 market corrections in the S&P, which have lasted an average of 94 days (Source: Yardeni Research). However, if you take out the extended 2008-2009 bear market, the average falls to around 60 days.
This means the current downturn could be short-lived and provide upside potential for those willing to use this correction as a buying opportunity. Even if you don’t have cash on hand to deploy, this market panic represents a great opportunity for you to test your market “fortitude;” a fortitude that has been collecting dust for over a decade. Resist the urge for knee-jerk reactions, because you only truly realize losses when you sell.
When the dust settles, and the worst of the coronavirus outbreak is in the rearview mirror, stocks are expected to soar with pent up economic demand leading the charge! Although we expect volatility to continue throughout the spring and into election season, remember that buying on major dips could provide significant returns in the months and years ahead. So, make sure you stay the course and, if possible, take full advantage of pullbacks whenever they come along.
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