Coronavirus and Market Uncertainty
Posted by Ocean Wealth
Over the last week, the financial markets have taken a significant downturn over the fears surrounding the Coronavirus. The S&P 500 had its worst weekly drop since the financial crisis in 2008, after setting all-time highs the previous week.1
Of course, investors are nervous about their money. If you are concerned with your portfolio, you’re not alone, however during times of market volatility, it’s important to stay objective and not emotional - and yes that is hard to do.
Staying focused is the key to avoid falling into the trap of panic selling.
In situations like these, it’s important to maintain the right perspective. This is not the first time the market has declined quickly and it will not be the last. Market corrections are a normal part of the investment cycle and over the long term; investors that remain calm can use the volatility as an opportunity to buy quality companies at discounted prices. The news media can hype the market downturn to make it seem worse than before. In reality, though, volatility doesn’t hurt investors but selling indiscriminately in a downturn will lock in losses and make it difficult to re-enter the market as the recovery in stock prices can sometimes be extremely fast. This may catch investors off-guard who run the risk of missing out on the recovery.
So how have equity markets reacted to previous virus outbreaks?
The chart below2 shows how the World Stock Index (MSCI) has performed during similar virus outbreaks in the past. While the short term jolt can be negative, the long-term impact has been limited. In the past all market corrections were higher 12 months after the virus was detected.
1. Source: Bloomberg Finance L.P., CitiResearch, Factset. As at February 27, 2020.
2. Source: Charles Schwab, Factset data as of Jan 1, 2020
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