This was a communication sent to our clients last week about the coronavirus and its impact on the global financial markets.
If you’re following the news, you already know that financial markets across the globe have experienced increased volatility over the last several weeks, and particularly in the last several days. This bumpy performance is driven in part by the continued spread of the coronavirus “COVID-19” across the world.
Some may ask what a flu-like virus has to do with the stock markets? The reason for the impact is because of how the virus has essentially shut down production in much of China, which ultimately disrupts supply chain across the world, since much of the goods produced in China are exported to other countries. For example, if US companies like Apple can’t get their phones made in China, it impacts their sales and subsequently, their stock price.
Concerns about this coronavirus have led to sharp declines and high volatility in global financial markets. In the U.S., the 10-year Treasury note reached a yield of 1.37% in early trading on Monday February 24, its lowest yield in four years. Equity markets have also experienced increased volatility, although the S&P 500* did reach a new high as recently as February 19th. It is now down about 8.5% since that record high. It’s difficult to fully quantify the potential economic impact of COVID-19, as it will largely depend on the length and severity of the outbreak. While the spread of the virus in China seems to have slowed, unfortunately it has increased in other parts of the world.
It is important to make a distinction between temporary market reactions driven by uncertainty and the fundamentals that drive market performance over the long term. History has shown that even when stocks have suffered a short-term hit from virus-related worries, they have tended to bounce back in the following months. Of course, past performance never guarantees future results but here is a chart to put it in perspective.
It is important to remember that market volatility is both natural and expected. This is not something shocking or worrisome. For now, we believe that the negative repercussions to US growth will be relatively minor and that recession risk remains relatively low.
We tailor our clients’ investment portfolios based on their goals, risk tolerance levels, and time horizon so that they are positioned to navigate through various market cycles to try and achieve their personal goals. And assuming those goals and risk tolerance levels have not changed, we do not believe short-term changes to a portfolio are warranted in times like these. We recommend staying the course and as always, if you have any questions or concerns we can help with, please feel free to reach out.
For further information about the market in general, please refer to one of our previous vlogs about the market such as the one we made the last time we saw severe volatility in the 4th quarter of 2018. LINK HERE.
*The Standard and Poors 500 Index is an index of US company stocks. Indexes can not be invested in directly, are unmanaged, and do not incur management fees, costs, or expenses.
The data provides was gathered from sources believed to be reliable, however, it cannot be guaranteed. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is not guarantee of future results. This material may contain forward looking statements and projections. There are no guarantees that these results will be achieved.
Securities and Advisory services offered through FSC Securities Corporation, member/FINRA. Traditional/Fixed insurance offered through Kramer Wealth Managers, which is not affiliated with FSC Securities Corporation. Neither Kramer Wealth Managers nor FSC Securities offers tax or legal advice. Branch offices: 9099 Ridgefield Drive, Suite 101, Frederick, MD 21701 | 240-439-6889 (VP) | 240-39-6929 (V) and 611 S. Congress Ave. Suite 440, Austin, TX 78704 | 512-410-0739 (VP/V)