We have seen global stock markets continue to slide based on new reports on the coronavirus. Investors are unsure how long it will take China to get back up and running, the degree to which it will spread across the globe and the impact it will have on supply chains and global consumers.
While the decline has been swift, this level of decline is not unprecedented and is another reminder that the stock market moves quickly to incorporate new information into prices. There have been numerous other drops that have been in the same range as what we have seen currently.
As of this writing, the US stock market, as measured by the S&P 500, is down 13.7% from its peak last Wednesday and 9.0% for the year to date. In the below chart you can see the number of downturns in the US stock market that have been 10% or greater, their duration and the market performance thereafter.
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There have been 16 other downturns over the past 93 years that have averaged a cumulative decline of 27.6%. They have typically been relatively short lived and have been followed with an average cumulative gain of 194%. By being able to ride out the declines, history has shown that investors have been able to benefit greatly.
Watching the news and seeing the headlines – they are designed to elicit an emotional response and that’s usually counterproductive when investing! We don’t know when the market will bounce back or how quickly, but we believe stock investors will be compensated with positive expected returns over the long-term. It has been shown time and again with past market shocks as can be seen in the chart above.
This is not the time to panic or even change your current plan. Your plan considers that sharp declines such as those we’re experiencing today will happen. We continue to recommend being disciplined to your investment strategy. Changing plans and locking in losses is what harms investors long-term. While stocks have fallen, high quality fixed income continues to hold up well. We are keeping a close eye on your portfolio and will look to take action if we see further declines by selling from the areas that have gained, high quality fixed income, and buying into stocks.