Capital markets have reacted sharply to the escalation of Coronavirus since mid-February. Both equity prices and bond yields have experienced historic volatility and fallen sharply in a short period. A historic drop in oil prices is adding to the high degree of uncertainty. Prior to the selloff, the market had hit all-time highs. Wharton School finance professor Jeremy Siegel recently stated, “It was the type of market that if anything went wrong, even a pebble in the road, it could derail the markets. Well, we didn’t get a pebble; we got a boulder with the Coronavirus.”

The recent wave of sporting event cancellations, quarantines, reduction and restriction of travel, school closings, etc., will slow down the economy, but there is uncertainty around the extent and duration of the slow down.  Central banks are cutting interest rates and they will likely continue to do so. The government is preparing a fiscal and economic stimulus package, however it is clear these measures will not have a significant impact in the immediate timeframe. These measures are more likely to spur activity once the virus is contained.

Investors should expect the volatility to continue for the near-term. The virus is expected to spread more deeply in the US and Europe. Capital Markets will remain highly sensitive to news on the virus as well as economic and corporate data.

While the reason for this downturn is unique and arguably unprecedented in today’s world, volatility is a normal occurrence in capital markets. The chart below¹ illustrates this point by providing the annual returns and the intra-year declines of the S&P 500 from 1980 through March 10, 2020.

1. Review your asset allocation and be prepared to take action. The S&P 500 is down over 20% YTD and the Barclays Aggregate Index (intermediate term taxable bonds) is up approximately 4% YTD. You should consult with your investment advisor to discuss considering rebalancing your portfolio. The key to long-term success is being disciplined and taking action to keep your portfolio in line with your targets.
2. Do not panic, as hard as that can be during these uncertain times. It is very difficult to call the bottom. Most investors who sell in a down market do not go back in to the market until conditions have stabilized and often miss a good portion of the recovery. Illustrated below is a chart² that quantifies the impact of missing the best 10, 20 and 30 days in the market over the last 25 years. As you can see, missing the best days in the market can have a dramatic impact on your long-term returns.

Sources:

1.  FactSet, Standard & Poor’s, JP Morgan Asset Management. Guide to the Markets – U.S. data are as of March 9, 2020
2. Standard & Poor’s and Lord Abbett. Returns are measured based on the S&P 500 Index. The “best” days to be invested are defined as those on which the S&P 500 delivered its highest returns for the given periods based on historical data. Annualized return and total return assumes the reinvestment of all dividends and/or capital gains. Past performance is not a reliable indicator or a guarantee of future results. The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are intended to predict or depict future results. Indexes are unmanaged, do not reflect deduction of fees and expenses and are not available for direct investment.

RubinBrown Advisors, LLC is an SEC-registered investment advisor under the Investment Advisers Act of 1940.  RubinBrown Advisors, LLC is wholly-owned by RubinBrown LLP.