|Hello clients and friends,|
We hope you are doing well as we move closer to spring. We care about each of you and wanted to share our thoughts on the recent market pullback.
In our newsletter you received in January, we referenced how much fun it is to write about the public investment markets when they do well like they did in 2019. The markets continued on an upward trajectory in 2020 until last week. How quickly things can change. Two weekends ago, news swiftly spread around the world that the coronavirus was not contained within China. With the new uncertainty and market valuations somewhat elevated (e.g. the forward price-to-earnings ratio for the S&P 500 index was 15% above the 25-year average), program-based trading platforms hit their metrics that led to a certain amount of automatic stock-selling. Concerns that the virus would spread to the rest of the world and lead to a global recession increased the number of sellers. The impact of closed factories in China and other major “supply side” countries is still unknown. In a very short period of time we have entered “correction” territory, defined as a 10% or greater decline from the prior peak. History reveals that corrections occur every 1 – 2 years on average.
As you hear us say repeatedly, the past is no guarantee of what will happen in the future. However, we can look at the past for patterns. According to a 2/27/2020 article from Mainstreet Advisors, “In five previous instances of global virus outbreaks over the last twenty years, including the 2003 Severe Acute Respiratory Syndrome (SARS) and the 2012 Middle East Respiratory Syndrome (MERS), the average initial decline of the S&P 500 Index was 8.4%. Six months following the beginning of the decline during each of these five periods, the benchmark, on average, was 9.2% higher.”
|We are hopeful that the markets respond this time with a similar rebound in magnitude and time frame. Many economists are still predicting a rebound (not a recession) and they can occur very quickly. In fact, this may be a great time to invest cash that you have been holding as “dry powder” for future investment. However, we know that pullbacks like this can cause some of you to feel unsettled. Please remember that investment decisions based on emotion almost always lead to negative outcomes. History has proven time and again that successful investors maintain their investment discipline during times of market volatility. If you need to talk with someone, be sure to speak with one of our advisors as we like to provide a voice of calm during times of uncertainty. Additionally, our team is always ready to create a thorough financial plan for you. The plan will include a “stress test” of your financial situation, including an analysis of the impact of underperforming markets on your financial independence. We have watched many clients experience a sense of peace through the financial planning process.|
Please let us know what questions you have and if there is anything we can do for you.
Integrity Wealth Advisors