The first few months of 2020 have left everyone looking for the reset button. Can we start over, please? The new decade began on a somber note as fans around the world mourned the losses of Kobe and Gianna Bryant, former NBA Commissioner David Stern, and legendary Rush drummer, Neil Peart. Just as those wounds were beginning to heal, a wave of the novel coronavirus “Covid-19” spread across the globe, resulting in a worldwide pandemic and economic shutdown. Today, millions of people across the world have lost their jobs, hundreds of thousands have lost loved ones, and essentially everyone has experienced a dramatic change to their day-to-day life. What behavioral economists call “recency bias” certainly plays a role, but we’re just over 100 days in and 2020 already feels like one of the longest years ever.
Uncertainty surrounding the coronavirus outbreak has also sent shock waves through the stock markets over the past two months. Like you might have experienced after your favorite ride at Disneyland, when it was still open, the massive swings have left many investors feeling whiplashed and a bit nauseated. Did you know that since February 21st the average daily price change for the S&P 500 has been about 4%? This raucous ride has made it easy to forget last year’s relatively steady rise of 28.9%1 for the S&P 500. It has been said that volatility is the cost of admission for the stock market’s strong returns over the long run. We’ve paid our fair share this year for sure, but it feels like the prices are more Neiman Marcus than Costco.
Looking forward to the coming months, we expect the waters will remain rough. Thanks to support from trillions of dollars in stimulus packages and signs that we could be witnessing a plateau in new coronavirus cases, the stock market has already rebounded over 25%2 off its March 23nd low. That being said, this week marks the beginning of earnings season for some of the world’s largest companies, which will likely lead to additional volatility. Analysts will closely monitor how companies are navigating the economic shutdown and look for some kind of earnings guidance from company leadership.
While all this volatility is deeply unnerving, it is extremely important for long-term investors to stay the course during these trying times. With a 12%3 return last week, the S&P 500 recorded its best weekly gain since 1974, once again demonstrating that the best days in the market tend to be grouped near the worst – think rainbows follow rainstorms. To many, the most surprising aspect of the recent rally was that it occurred in a week where Covid-19 deaths saw their greatest increase and millions of Americans filed for unemployment. This reinforces our belief that timing the market is nearly impossible and that missing out on even a handful of the good days can substantially hurt your long-term returns.
We believe, and hope most people would agree, that when we look at the world a year or two from now, it will look much more like 2019 than the first quarter of 2020. Rather than stress too much about the stock markets, which should sooner or later work themselves out, we want to encourage you to focus on the well-constructed financial plan that you’ve implemented. If you feel that your near- and long-term goals have been impacted due to the coronavirus or are feeling uneasy about the amount of exposure you have to the stock market, please don’t hesitate to talk it through with our team.
1Morningstar 2CNBC 3YCharts