The obvious dominant headline impacting markets this week has been the COVID-19 coronavirus. For the past few weeks, I’ve read as much information as I can absorb about the virus, and I want to share my thoughts. My sources of information are the websites for the Center for Disease Control (CDC)1, Johns Hopkins University Center for Systems Science and Engineering (CSSE)2 and the World Health Organization (WHO)3. (Links to sites are at the end of this letter).
This week has been volatile and ugly for stock markets internationally and in the U.S. When we hear of or see stock prices falling, there is always “a reason” for the declines…this week, we have all heard it is due to the coronavirus. However, my assertion is stock prices fall for a variety of reasons. While it is fair to say the virus is the root cause of volatility this week, I believe much of the market behavior is based purely on emotion (fear, confusion, anxiety, irritation, fatigue, etc.).
Although stock prices have dropped, unless you have sold any stocks you continue to own the same number of shares. Only days ago, the markets were at an “all-time” high. When stocks are at an all-time high, this means stocks must have come back up from a low price. Consider this: over the past 27 years, there have been 494 “all-time” new highs4. Of course, I can’t guarantee there will someday be a 495th all-time new high, but I believe there is an exceptionally good chance we will see not one, but several more in the future.
- Beginning Wednesday February 19, 2020 and continuing every day since then, the daily number of people recovering from the virus have exceeded the daily number of new confirmed cases.5
- The S&P 500 reached an all-time high of 3,387 on Wednesday February 19, 2020 – notice this is the same day the virus recovery rates began to exceed new confirmed cases.
- Prior to the coronavirus, the most recent epidemic to impact markets had been Ebola, which began in March 2014. The S&P 5006 reached a low of 1,815 on April 11, 2014 and had climbed 17% to 2,130 by the time the epidemic was officially declared to have ended in March 2016.
Please assess your current state of mind related specifically to the virus and your portfolio. While doing so, consider the following:
- Have your long term goals changed?
- How much money do you expect to need from your portfolio over the next 12 months (other than what you might withdraw systematically), and do you want to have that amount moved out of stocks?
- If you want to move any money out of the stock market, you can request to sell shares and move the sales proceeds into a government bond fund, or a money market or (for brokerage accounts) an FDIC-insured sweep program.
- If you were to move any money out of the stock market currently, with an expectation to reinvest into the stock market sometime in the future, what event or events would need to occur to cause you to move money back into the stock market?
- If you had available cash to invest into the stock market, would you consider buying at today’s prices or would you wait to determine if stock prices fall further?
There is no correct or common answer to any of these questions. Your current assessment and my current assessment do not need to be and likely will not necessarily be the same. In fact, it would be totally improbable that any two people would reach the exact same conclusions when faced with the same circumstances
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Thank you for your trust and patience,
1 US Department of Health and Human Services/Centers for Disease Control and Prevention https://www.cdc.gov/
2Johns Hopkins University Center for Systems Science and Engineering https://systems.jhu.edu/research/public-health/ncov/
3 World Health Organization https://www.who.int/
4www.yahoo.com/finance historical closing price data for SPY 1/29/1993 – 2/27/2020
5 Interactive web-based dashboard at https://systems.jhu.edu/research/public-health/ncov/
6 www.yahoo.com/finance historical closing price data for ^GSPC (the S&P 500 Index)