This Too Shall Pass

March 16, 2020

The pandemic is here, and we’ve found ourselves in a bear market. Beyond our stocks, many of us may also be worrying about whether we have enough toilet paper. In our area, it’s impossible to find any.

The market has declined sharply over the last few weeks. The country is going into lockdown. Today in Maryland they closed restaurants and movie theaters and banned large gatherings.

It’s understandable if you’re worried about the situation. After all, it seems unprecedented.

If you need a pep talk or to discuss your investment strategy, please schedule a call or reply to this email. I'm here for you and happy to talk.

Please pardon the pun, but it feels like we have reached the point where coronavirus-related fears have gone viral. As these concerns have grown, market volatility has increased dramatically. Since the market reached an all-time high on February 19th, the market’s close differed from the previous day by less than 1% only two times. The average daily change exceeds 4%.

As your financial advisor, I understand that your money is very important to you. I also recognize that the health and well-being of you and those you love are also important. None of us wants to see our loved ones contract an illness that could put them at serious risk.

But, let’s not panic. This has happened before. The table in this article shows how the market has performed when we've experienced other viral outbreaks over the last 40 years. Generally, the market (as measured by the S&P) was higher both six and 12 months after the outbreak. Of course, other factors can weigh in as well.

The last outbreak to reach pandemic status was the H1N1 Swine flu. It reached the U.S. in April 2009.[i] It’s quite possible you hardly remember it. At the time, markets were on a tear after bottoming out in March 2009. That outbreak barely registered with investors.  

One can argue that COVID-19 is nothing like recent epidemics.

We can go back much further. One of history’s worst pandemics was the 1918 Spanish Flu.[ii]Despite its toll on human life, the Dow increased during that pandemic.

This happened even though the Spanish Flu led to quarantines and labor shortages. It also contributed to a short recession in the aftermath of WWI. Although markets in 1918 were extremely volatile, they resumed their upward trajectory by early 1919. This happened even before the pandemic officially ended.

Pandemics have hit the U.S. periodically over the last 100 years. These outbreaks sometimes precipitated or accompanied market declines. However, stocks typically regained ground quickly as the epidemic subsided.

The past can’t predict the future. But in this case, it can remind us that pandemics are not the sole driver of market movements. Factors such as economic fundamentals, business health, and future earnings all drive long-term market trends.

Please understand that my goal isn’t to downplay the outbreak’s seriousness. The virus’s current growth rate is exponential. It’s not going away any time soon. At the same time, markets appear to be driven by fear and uncertainty more than rational assessments of the future.

We have talked in the past about how market corrections and bear markets are par for the course. They are to be expected. The volatility we’ve seen recently is why your portfolio is positioned for the long term.

Ask yourself will this matter in five years? As bad as things seem today, the world has survived similar and worse situations many times in the past. While I do not want to diminish human suffering in any way, this virus will eventually run its course. It’s unlikely to have a lasting impact on your portfolio’s value five or 10 years in the future. Even if you’re retired, you should never lose sight of the future. I know I won’t.

What can you do?

1.      Don’t let the headlines drive your buy or sell decisions. A considerable amount of fear, speculation, and uncertainty are creating market volatility.

2.      Don’t watch the financial news.

3.      Take a walk and enjoy the beauty that comes with early spring.

4.      You are being blessed with a lot more time with your family. Take advantage of it.

5.      Focus on staying healthy and taking sensible precautions to keep yourself and your family safe. Be protective of loved ones who are at higher risk of virus-related complications.

6.      Show others around you some extra kindness in these anxious days. Be grateful for those medical professionals who are working hard to keep us healthy. The same goes for those helping to keep our stores stocked.

7.      Remember that our nation has been here before. We have the resources needed to get through this.

8.      Exercise. It helps relieve stress. I continue to use my elliptical in the early morning. When appropriate, I will also go bike riding with my children during off-hours.

We’re watching the markets, so you don’t have to.

When markets appear to fall off the cliff and we face economic upheaval, professional advice can help you cut through the noise and make rational decisions.

Please take solace in knowing that we – myself along with others that I work with – are closely monitoring the market and the news around it. I am looking after your portfolio, seeking opportunities, and remaining focused on the future. I will continue to provide updates as needed.

If you have any friends that are nervous and do not have an advisor or whose advisor is not reaching out to them, feel free to have them give me a call. I’m happy to give them 15 or 20 minutes to help them answer their questions, no-obligation because they are a friend of yours.

 


[i] https://www.cdc.gov/flu/pandemic-resources/1918-pandemic-h1n1.html

[ii] https://baseballhall.org/discover/1918-flu-pandemic-didnt-spare-baseball