(April 2020) – Most of us know that eventually what goes up, must come down. Nov. 14, 2019, officially marked the "best bull market ever," capping a 468 percent gain for the S&P500 that began on March 9, 2009. However, the markets have taken a hit since then. The S&P500 suffered its worst quarterly decline since 1987. What is causing the recent drop? News of the deadly coronavirus (COVID-19) spreading rapidly across the globe have created fear and concerns for investors.
The chart below plots the fatality of viruses against the reproductivity rate, and while COVID-19 is relatively new, the fatality rates are skewed heavily towards older people and those with pre-existing conditions. Infection rates, inside of China, have been slowing – a positive sign. Perspective is important.
Source: World Health Organization
There is no doubt that the COVID-19 virus has had an economic impact on global supply chains, especially given the heavy reliance on Chinese production. However domestically, the impact has been relatively manageable. Markets have been pricing in large earnings declines of about 20-25 percent for Chinese companies, and about 10-15 percent for U.S. companies.
As with any financial downturn, it is wise to review your investment plan, including your retirement investments. A good investment plan should have already been stress-tested for just this type of market event and should be reviewed and updated at least annually. That said, it is never too late to review your strategy with a professional and ask some timely, relevant questions. These questions might include:
- Should I move out of stocks now and move into cash?
- What affect will this recent volatility have on my retirement readiness?
- Has my timeline for retirement changed?
- Has my tolerance for risk changed?
For those of you in a Target Date investment – congratulations- those investments typically scale back your exposure to market volatility over time, automatically. For those of you that choose to allocate your own investments, now may be a good time to revisit those allocations and ensure you're properly positioned for the inevitable return of the bull market.