Dear Clients & Friends,
Below, please find our thoughts on the current market volatility.
What is happening?
Global markets are experiencing a material sell-off this week as investors become increasingly concerned about the impact of the Coronavirus (COVID-19). After reaching an all-time high on February 19th, the S&P 500 Index has shed roughly 11% as of midday Thursday, officially entering into a “correction”. Several segments of the market have been hit harder due to concerns over a more acute impact on earnings in the year ahead. These include travel, retail, gaming and other companies affected by supply chain disruption either already occurring, or feared to occur, should the pandemic worsen. The markets seem most concerned about the potential for a material outbreak in the United States, and what impact that would have on the American consumer and economy. A 24/7 cable news and social media driven news cycle, an increasingly interconnected global supply chain and a stock market many feel has become somewhat richly valued have all contributed to the recent market reaction.
While shocks to the markets are unpleasant, as long term investors, we must be prepared to experience them from time to time. Although no two pullbacks are alike, nor are any two pandemics, it is helpful to understand how markets have historically reacted to these events. The chart below illustrates the S&P 500 returns at 6 months and 12 months following health related events over recent decades:
What should we expect going forward?
The extent and duration of the Coronavirus outbreak and resulting global economic impact is impossible to accurately predict. Along with an extremely polarized political climate playing out daily across all traditional and social media outlets leading up to the U.S. elections in November, it is prudent to expect continued volatility through the remainder of 2020. It is important to keep in mind that markets often price in “worst case scenarios” during the initial days and weeks of any perceived shock to the system. This is most often followed by markets stabilizing, then recovering and eventually moving higher once the reality on the ground is not nearly as dire as what was once feared.
Is there anything we should be doing now?
First and foremost, don’t panic. Most of you have been with us for many years, if not decades. We continue to believe that by maintaining and continually reviewing appropriate asset allocations for each client based on their unique financial and life circumstances, we create portfolios which can withstand volatile times. Maintaining suitable amounts of cash and fixed income assets allows us to weather the storm and meet any cash flow needs during short or intermediate term market disruptions. This serves to dampen the overall volatility while the equity portion of your portfolio has time to stabilize and recover. Of course, life circumstances and risk tolerances change over time, so we encourage you to contact your team of advisors should you wish to discuss your personal situation in greater detail.
As we look forward to the spring, we continue to appreciate your confidence and friendship.
JOEL ISAACSON & CO., LLC