Mother Nature can sometimes be a real jerk
Everyone, cough into your elbow “Dracula style” and say coronavirus, coronavirus, coronavirus…and just like Dorothy, we’ve all ended up at home. This brave new world of social distancing and shelter-in orders has dramatically altered our reality, much like Dorothy entering the colorful land of Oz on the back of a wild tornado. Coronavirus has directly attacked the health of the global population, and indirectly effected our very way of life – global commerce is slowed, markets are reeling, tourism is at a standstill, businesses are shut down, restaurants and movie theaters are empty, shopping malls are abandoned…
People are scared, and, honestly, this is completely reasonable – never have we experienced anything quite like this. Unfortunately, we have all the time in the world to think about how crazy this whole situation is, as we sit on the couch glued to the news or looking for something else to binge-watch on our streaming service of choice. But make no mistake…eventually we will get back over the rainbow and return to our boring “black and white” lives. In the meantime, the coronavirus will continue its indiscriminate assault on humanity, like the wicked witch it is.
The markets have been incredibly volatile in their downward trend across all asset classes – nothing has evaded the negative pressure of coronavirus. All equities are down across the globe. Alternatives have been hit hard with the recent energy crisis as Russia and OPEC engage in a mutually destructive oil battle. Even traditionally “safe” assets such as long-term fixed income and gold have been down.
While it’s always difficult to watch the value of our investments continue to drop, we must remember that this trend won’t last forever. Eventually, we will turn the corner in combating this virus and we expect the markets will rebound as they always have throughout history. “So then why don’t we just go to cash right now and buy back in when things get better?” you may be asking…because no one – I repeat, NO ONE – can correctly time the markets. There’s no bugle horn sounded to announce the bottom, notifying us to reinvest. Markets are smart and based on future predictions – they will begin to recover BEFORE we actually “win” a battle against the virus, not after. If you sit on the sidelines waiting for things to get better, you will very likely miss out on the positive upswing. Time IN the markets is far more important than timing the markets – the real risk is not being invested.
No one can correctly time the markets. If you sit on the sidelines waiting for things to get better, you will very likely miss out on the positive upswing.
To iterate this point, let’s look at the performance of the S&P 500 in the 10 years during and following the Financial Crisis in the chart below. If an investor would have missed the 10 best trading days in the market from 2008 to 2018, nearly all of the return for that decade would be eroded. What’s more, 7 of those 10 best days (for the entire decade) came within 6 days of the one of the worst days. While it may seem counterintuitive, it is far riskier to sit on the sidelines in cash than to remain invested.
Source: Bloomberg daily returns of S&P 500 index. This chart is for illustration purposes only.**
If the volatility is causing you to lose sleep, we should discuss what additional actions we can take to address your concerns while remaining committed to your long-term goals.
As the coronavirus continues to spread around the globe, we will hear more and more reports of increases in confirmed cases and deaths resulting from the virus. Media coverage on the topic will likely remain mostly negative, as experts extrapolate worst case scenarios to spur action both among the population to curb the spread and among politicians to encourage action at the state and federal levels.
Testing capacity is about to rise substantially in the US, which will naturally result in an increase in the number of confirmed cases. This testing is key to identify and isolate the sick so that we can mitigate the spread and work to slowly restart the economy by allowing those who are not infected to return to work.
The number of confirmed cases and deaths related to the virus will continue to increase, particularly here in the US. However, we also expect an uptick in the number and rate of recoveries.
Based on what we’ve seen in other countries that are ahead of us in the coronavirus outbreak timeline, we will likely see a spike of cases in the next week or two of people who were exposed earlier this month. Remember, the number of confirmed cases is a lagging indicator of our social distancing restrictions – because it takes time for the virus to actually make us feel sick, we won’t see the impact of our efforts to minimize the spread until mid to late April. Additionally, now that we are a little over two weeks past the initial outbreak in the US, we will also begin to see an uptick in the number and rate of recoveries.
It will be a little while before “life as normal” is actually normal. Measures being taken to curb the spread of coronavirus are causing significant disruption to our everyday lives. These restrictions are unprecedented and result from of our collective, unemotional decision to put public health above our economy. That’s right, we effectively chose to push ourselves into a recession – shutting down businesses and keeping people home could only result in an economic slowdown, but we did it anyway to protect our citizens. While there are other forces at work causing all the recent volatility, take solace in the fact that we are choosing to protect American lives.
These restrictions result from of our collective, unemotional decision to put public health above our economy. But sometime soon the scales will slowly tip back, as the economic costs become too great.
The social distancing restrictions are critical in this early phase of the outbreak to provide us with time to study the virus so we can better understand how it spreads, minimize significant spikes in cases that would overwhelm our healthcare system, and begin to develop treatments. Unfortunately, the flip side of these restrictions is a global economic shutdown, and – make no mistake – this can be equally devasting the longer it continues. Our policymakers must balance between these two contrasting needs – the health of our population and the health of our economy. As it stands, the economic costs do not outweigh the medical necessity to curb the spread, but sometime soon those scales will slowly tip back. As we begin to get this outbreak under control, expect to see a slow reboot of the economy in appropriate areas to get the gears moving again and help to mitigate the overall, ongoing economic costs of this virus.
Remember, this too shall pass. Before the coronavirus outbreak, our economy and the markets were strong – we can not only weather this storm, we can and will recover from it.
**Past performance is not a guarantee of future results. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.