We wanted to let you know that we are closely following the financial markets across the globe and the continued volatility that is impacting investor confidence. Global markets have been bracing for uncertainty as the spread of COVID-19 leads to reduced economic activity.
At this moment, it’s impossible to forecast whether a recession will occur as a result of COVID-19 and the impact on the global economy. Outbreaks are eventually contained, and recessions are part of market cycles. The most important thing to keep in mind is not to overreact to the headline news which can often create unnecessary panic. Markets have proven resilient over time and it’s important to maintain discipline and focus on your long-term goals.
While there are uncertainties at this time, we feel that looking at data can help us gain perspective during these historically significant times.
For example, according to Morningstar, three of the five market records occurred within the last two months:
Record high close - February 12, 2020, the Dow closes at 29,551.42 points.
Biggest one-day point gain - March 2, 2020, the Dow gains 1,294 points.
Biggest one-day percentage gain - March 15, 1933, the Dow closes up 15.34%.
Biggest one-day point loss - March 9, 2020, the Dow closes down 2,013.76 points.
Biggest one-day percentage loss - October 19, 1987, the Dow closes down 22.61%.
Unfortunately, the best and worst days are usually stacked on top of each other, which is why we feel it is important to stay invested. Selling off in an effort to avoid the worst days could easily mean missing the best days and catching recovery. Remember, investing is a long-term endeavor.
Headlines would have us believe we are headed for a repeat of 2008. The following excerpts appeared in USA Today (3/11/2020) and are a good reminder that our economy and the consumer are on much more solid footing now than at the onset of the Great Recession:
“Take a breath. While the toll the infection ultimately takes on the nation isn’t clear, the economic upheaval caused by the outbreak will likely not be nearly as damaging or long-lasting as the historic downturn of 2007-09.
For one thing, the 2008 financial crisis and recession resulted from years of deeply rooted weak spots in the economy. That’s not the case now.
The economy’s major players – consumers, businesses and lenders – are much better positioned to withstand the blows and bounce back.”
For the full article, which outlines the specific differences between today and 2008 in household debt, job losses, the Fed, corporate health, banking regulation, and more, follow this link:
The bottom line is that we've had severe flus before without a recession and when we did have a downturn, the economy bounced back very quickly. The stock market is pricing in a steep drop in profits, which is certainly possible. A strong recovery, which we expect, will reverse this as it has in the past.
Finally, probably the best perspective we’ve heard was offered by Michael Osterholm, an American public health scientist and biosecurity and infectious disease expert. It’s a long discussion, but we feel its worth the time to listen and learn. After all, knowledge is power:
Please don’t hesitate to call us to discuss your questions or concerns. We are here to help you stay on track with your long-term goals. If you do not need to pull large lump sums at this time, it is probably best to wait until we begin to see recovery. Please let us know if that is the case so we can help you plan.
Above all, please stay healthy.
Tom, Sarah, Dave & Jane
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results.