Global markets have been roiled since Monday over news that the Coronavirus (dubbed COVID-19) has spread beyond China into Italy, South Korea, Iran, and most recently one case in Brazil. While there have been very few cases in the United States, as more and more countries experience the spread of the virus, successful containment becomes harder and harder. Understandably, the markets reacted to the news by declines in excess of 3% for two consecutive days. As of this email, US markets are down slightly, but as the virus spreads the potential for further market correction becomes highly probable due to the projected slowdown in global growth resulting from the virus. The question now being, “what should an investor do?”
First, let’s remember that this isn’t the first case of an epidemic impacting our global economy. A short history would include:
One can see that while there is concern of a global economic slowdown should the Coronavirus continue to spread, this is not the first and won’t be the last global epidemic, and none of the previous outbreaks over the past 18 years resulted in a global recession.
Second, keep in mind that all client portfolios are designed to accommodate bear markets and corrections. Clients in withdrawal phase have ample bond positions (which have rallied as money pours into less volatile investments) to see them through years of average annual withdrawals. Those in the accumulation phase will not be needing the funds in the short-term, and a correction provides them an opportunity to continue to invest, but at a lower cost. In the meantime, Dolan Capital is a big believer in making lemonade out of lemons, so as we move forward we will take advantage of all financial planning opportunities a bear market presents including lower mortgage rates, tax loss harvesting opportunities, and the ability to invest new cash at a lower basis.
On a brighter note, the CDC noted that while the virus is quite transmissible, it is not as severe as it first appeared, impacting the elderly and those with chronic health conditions the worst. It is not as impactful on children. Hopefully the warmer temps of Spring will create a shortened life for COVID-19.