Making Sense of Market Volatility

As we all have noticed, the last several days have been ugly for stock markets now that the potential economic impacts of the novel coronavirus “COVID-19” are being priced into company valuations. While the sharp correction is painful to watch, it also serves as a great reminder of the importance of having a properly weighted asset allocation that is designed to pursue your long-term goals.

Often the biggest mistake that we see investors make is bailing on their investment strategy when times get rough. During sharp market selloffs, we feel it is best to stay the course, moderate the amount of news you consume on TV and your phone, and remember the well thought out plan you have in place. Rather than having a knee-jerk response to what is happening in the stock market (good or bad), it is important to let your goals dictate the course of action.

The current coronavirus scare is going to have an impact on companies’ earnings and economic growth globally, which is why the market has retreated from its all-time high of February 12. That being said, we believe that markets have the capacity and potential to recover once we see signs of the virus being contained and business activity picking back up. There are already reports that Apple is starting to re-open retail stores in China.

Now that earnings season has wrapped up, we would expect the health scare to remain the main focus of Wall Street for the next few months. As additional news comes out, we could experience more ups and downs than we have in the past 12 months, but ultimately we hope that the impacts are short-lived. The market was trading at high multiples (price/earnings ratios, a.k.a “expensive”) and some may even consider this pullback healthy. There is also a lot of capital on the sidelines waiting for an entry point due to easy monetary and fiscal policies. This liquidity can provide some support for the markets going forward. Our long-term outlook on the stock market is still positive.

Please reach out to us any time if you feel especially anxious and have concerns.