It has certainly been quite a week for the markets. Fears around the coronavirus have resulted in sharp global market declines as the virus has spread from China to Italy and several other countries. The magnitude of the selloff is fairly ordinary, but the speed is noteworthy. This, after record market highs as recently as two weeks ago, has been unsettling for many. It is normal to be concerned. It also explains the greater volume of calls we have received these past several days. Some callers want to discuss their concerns while others are inquiring about the opportunities created. The first instinct of many during periods like this is to take some action. We strongly suggest a cautious approach because abrupt moves can create havoc for your long-term investment results.
We think it important to put this recent volatility in context. Like many short-term corrections, this one stems from uncertainty. The ultimate health impacts of the virus and the full economic effects cannot be known at this stage. The uncertainty itself, rather than quantifiable data, drives a lot of the pressures. When bad news arrives, given the hyperactive, over-leveraged, and computer-driven financial markets, losing positions must be unwound quickly, adding to the selling pressure. The sharp volatility is unnerving, but your portfolios have been structured with appropriate diversification to manage through this turbulence. The good news is that your bond positions have risen in value cushioning the blow as they should.
Our belief is that the virus will weigh on the Chinese economy in the near term and that will carry over to the global economy. The impacts will certainly be felt in the US but may be more limited. The US economy has been solid with historically high levels of employment, healthy income gains, a strengthening housing market, and consumer confidence that has been strong. This suggests a greater ability to weather the effects.
The markets are expecting the Federal Reserve to act in response to the virus shock. We believe the Federal Reserve will provide some soothing words and may cut interest rates again soon to help stabilize market psyche. We expect yields to remain low for some time.
We are very aware of how unnerving this might be for you. However, a market environment driven by fear, speculation, and uncertainty will present opportunities to identify mispriced securities, sectors, or asset classes as more information comes to light.
Download the flyer “Stock Market Performance: Through Sickness and in Health” from one of our institutional partners here>>
If you’d to speak with a Roehl & Yi financial advisor about your wealth management and investment strategy, please call 888-683-4343.