Traditions Wealth Advisors
Brien L. Smith, CFP®, Sarah D. Buenger, MPAS®, MSPFP, CFP®
Thank you for not panicking during these volatile times in the markets! I started in this industry right after Monday, October 19th, 1987 when the stock market declined almost 23% in one day, compared to the 13% we are down in two weeks. Just like in previous down stock markets, you, as a client of Traditions Wealth Advisors, are well diversified! That means that during this down time in the stock market your bonds and real estate investments are up! In fact, your portfolio performed so well in calendar year 2019, your values are higher than when they were in 2018. You have NOT lost money. And unlike previous downturns in the stock market, the economy is very strong.
The NEWS OF THE WEEK-Coronavirus, COVID-19, epidemic, pandemic. Whatever it is called, it is in the news and the media has their arms wrapped around this one and has exaggerated it. New.coronavirus outbreaks outside of China are rattling global markets. Investors who had previously taken the epidemic in stride are now coming to grips with concerns about COVID-19's impact on global economic growth and corporate earnings.
The new virus draws frequent comparisons to SARS, which killed 774 people worldwide in 2002 and 2003. While there are parallels, researchers still have much to learn about COVID-19. We are aware that the new virus is more easily transmitted and more difficult to detect.
This is what we know about the coronavirus:
In just 2 days, the DJIA shed over 1,900 points or 6.6%. In two days, the Dow gave up all the gains registered since the latest upward thrust in stocks began in October. But is the outlook really bad? Are we set to sink into a profit-killing recession that pummels stock? Have short-term investors overreacted, distorting normally reliable indicators?
As of the end of February the total number of cases of Coronavirus have leveled off, active cases have declined. With the virus no longer contained to China and as it poised to spread through Europe and the U.S., fear has spooked investors. The CDC is indicating that we will likely see a pandemic and we should prepare for school closures or telecommuting. That said, it may be several weeks before we see any possible significant impact on the data. The Fed Vice Chair, Richard Clarita says "it's still too soon to even speculate" about how the virus will affect the U.S. economy. The fed isn't ready to blink just yet.
How should you, as investors, continue to react?
As your financial planner, I can provide you with an explanation behind the market slide. I would also like to remind you that declines are inevitable and to stay focused on your long-term financial plan. In your financial plan we incorporate setbacks and inevitable market volatility. Keep in mind, that big moves don't foretell the future, both the big loss and the subsequent gain say nothing about what may happen next week, next month or next year, despite what the experts say. Market downturns of -10% or more occur on average once a year with the average length being 112 days. The chart below illustrates occurrences and average lengths of market downturns.
There are fears that the coronavirus could morph into something like the Spanish flu (1918). No one knows the ultimate trajectory of the coronavirus, but this is 2020, not 1918. The healthcare system is better prepared to deal with an epidemic. The CDC says there have been at least 29 million cases of the flu, and at least 280,000 hospitalizations (less than 1%) and sadly 16,000-41,000 deaths. With this we go about our daily routines without even blinking an eye.
It is important as an investor to avoid becoming too emotional on big up or down moves, but I am confident that over time our research, diversification and patience will be rewarded. We will continue to monitor your financial plan and investments. We will contact you if action is needed, however If at any time you have additional questions or concerns, just ask. That's what we are here for.
Your friend and advisor,
Brien L. Smith, CFP®