These are amazing times. Having seen firsthand the impact of the bubble burst, 9/11, and the great recession, the speed and pace of this current market is unprecedented. Unfortunately, the greater the uncertainty the easier it is to make decisions based on fear. I do not want to marginalize what is happening right now in the markets as just three weeks ago we were talking about all-time highs. In just a few days, we are now facing questions about how far will the markets continue to drop before they can find a footing or a new base to build off of again.
Our Current Perspective
The primary reason for the market selloff is the unknown impact of the Coronavirus on the worldwide economy. Initially this was considered a transitory event, meaning as quickly as it appeared, it could just as quickly go away. In our industry we would call this an event-driven bear market selloff and if that were all, just wait a few weeks. Once the initial reaction wears off and the rate of infections in the US begins to decline, the markets could quickly come back. The numbers from some of the earliest cities in China are starting to show those declines and business are starting to ramp up once again.
The concern now is that the possible solution for avoiding a pandemic that could kill millions may be worse than the virus itself. Today more economist have started to worry about developing economic risks. As businesses are starting to close their doors and reduce staff, there is a growing concern about this turning into a cyclical economic bear market. In other words, does the social distancing lead to the dreaded word “recession”?
Here is our perspective. First, we strongly feel that you should never operate or form final decisions based solely on fear. Fear is an important emotion to let you know that your body is aware of a problem. Before you consider major changes take a second to pause and consider all your options. Our advice is to always seek counsel if you are uncertain on how you should proceed. Now is the best time to seek wise counsel from others that have experience and you respect. An outside source of wise counsel can help give you another perspective. Always make your decisions with peace and unity.
Second, if you can look past the headlines, there may be some silver lining starting to appear. I will not get too technical but this type of selloff always creates opportunities. In fact, if you compare what people are paying to buy bonds vs stocks, we have not seen some of these ratios look so favorable for stocks since the late 1940’s and early 50’s. While we are not yet convinced that the worst part of this market correction is over, it may take a few more weeks. Keep in mind, a normal stock market correction could go down another 5-10% lower and still be normal. Yes that would mean an overall drop of 25-35% is normal. If that is too much for you to lose, then you need to review how much you should have in the market based on your risk tolerance and time horizon.