February 28, 2020 – Investing 101 – Coronavirus Edition
As most of you know this past week has not been very good for the markets. Quite often short-term volatility is directed by a couple of specific items. This pull back has been brought on by the Coronavirus. The biggest issue we are facing is the lack of knowledge as it pertains to its containment, as well as the remedy for those that contract it. This has primarily been an issue in China, until there were cases noted in Europe, and now we are beginning to hear of there being potential cases here in the United States as well as the rest of the world. The other item of concern is the global economic impact that has taken place due to the outbreak – which is still unknown. The market does not like uncertainty – and we have quite a bit of that now.
The S&P 500 has dropped 10% from our peak just a short while ago. Please keep in mind, as we write this, year to date we are down a mere 6%. As a matter of fact, just this morning the DOW dropped 960 points, and has since rebounded over 500 points in the matter of minutes. Unfortunately, this type of volatility has become commonplace. Any correction we have had in the past 5 years has been severe as evidenced most recently in the 4th quarter of 2018. That correction was due to the threat of rising interest rates and the “trade war” with China. Within the following quarter, the markets had rebounded, and we finished 2019 much higher. The reason for the rebound was the clarity that had been provided on both subjects as the FED Chair laid out the plan for interest rates and we had also received news of progress on a potential trade deal with China. The markets like direction and can handle both good and bad news when they have all the information. I believe in the next couple months we will have much more information about this Coronavirus and its impact. This news will allow the markets to digest what has taken place and more importantly creating a plan on how to manage things moving forward.
So, what do we do? We review your personal portfolio to be sure the allocation is appropriate. Secondly, we review your time horizon to make sure that money needed in the short term has been addressed as those funds should not be subject to this market volatility. For those with mid to longer term time horizons we must ride this out. The reason we will be riding this out is that the economy is strong. We have a healthy consumer domestically and given the strong economy we have seen excellent earnings reports to substantiate where the markets are. We believe that when we look back on this volatility, we would have seen it as a buying opportunity for those looking to invest. For those of us already invested, we must be patient and allow this to pass.
As usual this commentary is based solely the opinions of Arnie Magid, Brian Cassidy and Daniel Kelly. Nothing in the above written material is endorsed by, or written by, or provided by Cambridge Investment Research, Inc., or by any other outside party or firm.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cassidy Financial Services, LLC. and Cambridge are not affiliated.