What should I do with my investment portfolio now that Coronavirus seems to be everywhere?
Today, Monday, February 24, 2020, markets experienced huge losses as recent news of the Wuhan coronavirus spreading globally now appear to be having more of an impact on the markets than initially expected. The S&P 500 dropped 112 points or down 3.4% for the day. While this is an unusually big drop for a single trading day, keep in mind that these types of occurrences do occur. The most important thing we want to convey to our clients and the general public is not to panic and to not make investment moves based on emotions, i.e. fear.
Pandemics are a type of event we’ve educated our clients to view as an “earthquake” in the stock market. Like an earthquake, these events are sudden, unpredictable, and have major, immediate effects. We want to remind our clients and those who follow our commentary that we have discussed how we handle “earthquakes” in the markets within a portfolio. In our portfolios we prepare for earthquake-like events by investing your money into a portfolio whose risk level is appropriate to your specific financial profile and is well-diversified. We buy a mix of assets such as stocks and bonds which typically move in opposite directions. With today’s activity in the markets, bond prices are going up! Most of our clients own a mixture of stocks and bonds, and so while your stocks may be declining sharply today, your bond holdings are most likely rising in value, helping to cushion your portfolio’s losses. Although the stock market may be down 3% today, clients who hold bonds should be losing much less. That’s the power of diversification. We do this so that when we do get hit by an earthquake-like event, your portfolio can handle the gyrations.
The earthquake will pass at some point, things will settle back down and eventually get back to normal. While we cannot predict when that will happen history tells us it always does. The best thing you can do on a day like today is not to panic. We believe resisting the urge to follow the herd out the door always pays off in the end. Stay the course.
Current Outlook as of 02/24/2020
The Conference Board Leading Index of Economic Indicators for January 2020 surprised strongly to the upside signaling positive expected economic performance over the next 6-12 months. The economy still seems to be in a slowdown phase but the strong January number indicates recession does not appear imminent, with a possibility that we return to stronger growth in the U.S. However, in light of recent events, we will be watching the February Index (to be released March 19th) very closely as the effects of the coronavirus epidemic become clearer. The following image summarizes our top-down view of the economy and 6-12 month outlook based on the Conference Board Leading Index of Economic Indicators (click on image to enlarge).
As we mentioned, the markets are a bit rattled coming out of a weekend where we learned more about the outbreak and spread of the Wuhan coronavirus.
These are all issues that we are watching closely. Rest assured we will release more commentary to our clients and the general public when we have a clearer picture on the economy and markets. Stay vigilant!
If you have any questions or would like to learn more about our wealth management services and investment strategies, please contact us at (210) 223-8700 or via e-mail at email@example.com
Written by Dion R. Padilla, Wealth Advisor, and Nathan Ramos, Chartered Financial Analyst®