Market Update: March 13, 2020
It’s been a wild week for financial markets to say the least.
After all three major indices (Dow, S&P 500, and Nasdaq) dropped roughly 10% on Thursday, they rallied late Friday during President Trump’s speech to end up over 9% for the day and slightly down for the week.
For the week: Dow down a little over 3%, S&P 500 down about 2%, Nasdaq down about 1.5%
From the peak: Down down about 22%, S&P 500 down about 20%, Nasdaq down about 20% (a 20% drop is considered a “bear market”)
Treasury yields remain near historic lows (when things are bad, investors flee to bonds for “safety” and prices are inverse to yields. So high prices means the return, or yield, you’ll earn will be lower.) And the price of oil has dropped by almost 50% since January (primarily due to an OPEC price war).
Simply put, uncertainty has been dominating the news and markets, resulting in big drops and wild swings. And a lack of clarity on how the virus is actually progressing combined with an international travel ban and mass closings of schools, offices, sporting events, concerts – basically any large public gatherings – across the country has created a sense of widespread concern/fear (depending on who you ask).
But one thing we know for certain, panicking is not the solution. Yes, there will likely be a real toll on human lives as case numbers rise, especially for people over 60 and those with pre-existing health conditions. So we should take the risks seriously and all do our part to limit the spread of the coronavirus. But we need to remember that life will go on. The sun will rise and set. And markets will rebound (eventually).
To be clear, financial markets can still go down from here
We don’t want to be alarmist, but we also don’t want to offer a false sense of security when there’s so much uncertainty. While it seems like stocks and other financial assets are bound to recover from their rapid declines (and showed a major rebound today), frankly anything goes when panic enters the room, as Thursday reminded us.
There’s simply no way of knowing what could happen. Could stocks go down another 20%? Sure. Could they go down a lot more? Unfortunately, yes.
During the 2008 financial crisis, the stock market lost roughly 60% from it’s highest point to the lowest. And during the crash of 1929 and subsequent years of decline, the market lost over 90% of it’s value. So yes, things can get worse.
But they can also rebound quickly, and tend to do so when things finally turn a corner.
And you need to think of the probability of these events occurring, and take your long-term plans into account. If you’re young and have many years of investing/earnings ahead, you can probably handle a lot more risk than if you’re closer to retirement.
Pain in the real economy is almost certain
There’s really no question that people and the economy will be impacted by the events that are unfolding. Aside from the obvious health implications, businesses will slow down, and it will almost certainly have an impact on jobs and general welfare.
But again, it’s hard to know the size of the impact or how long it will last. It could be a relatively short bump in the road with a quick recovery, or it could be more long and drawn-out. We are in somewhat uncharted territory, for better or worse.
And confidence plays a big role in how things will ultimately unfold.
When collective confidence is shaken, financial markets and the real economy can take a beating, which can shake confidence even more, and cause a downward spiral. This is what we want to avoid and why it’s so important to approach these events as rationally as possible (easier said than done of course).
More news to come as testing ramps up
Given the limited testing to date in the US, it seems very likely we’ll see a dramatic increase in cases as testing ramps up. Whether or not that assumption is already factored into stock prices is hard to say (stock markets often anticipate news before it’s officially reported in the media). But it’s something that will likely play out in the next few weeks.
So be prepared and try to remember that more information is a ultimately good thing.
So what should you do?
As we mentioned in our last market update, if you’re already invested, probably nothing. (If you’ve been meaning to start investing though, now could be a good time to think about it since prices are down).
The past few weeks have been painful for investors, but this is in fact a normal part of investing (even though it may seem like absolute chaos). While the drops and rebounds never play out exactly the way they have in the past, they are guaranteed to happen.
The important thing is to have a plan and stick with it. And if you’ve discovered that a 20% drop in stocks is simply something you can’t handle, that should also impact your plan going forward since it’s likely to happen again in a lifetime of investing.
We know you probably have bigger concerns right now, but if you’d like to get started with a financial plan for the future, our automated feedback and education system can help. It’s free, secure, and we think it’s pretty cool. Here’s how you get started.
More to come
We’ll be back for more market updates as things unfold, and you can follow us on social media @ findwesdotcom (Facebook, Twitter, Instagram). Or you can enter your email below – we won’t spam you with a lot of nonsense or share your information. So until next time, wash your hands carefully, be smart, be safe, and help out others when you can.
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