Containment – February 26, 2020
When the coronavirus was contained to China, investors mostly brushed aside concerns.
More recently, some major firms have begun to reduce revenue/profit forecasts in response to supply disruptions from China and weaker Chinese demand.
Over the weekend, reports of coronavirus outbreaks in Italy, South Korea, and Iran sent stocks down sharply amid fears the virus is no longer contained to China.
- Worry—might the virus spread into the U.S., crimping economic growth?
Investor’s corner
Heightened uncertainty creates a risk-off, short-term trading environment, i.e., traders sell riskier assets (stocks) and buy safer assets (Treasury bonds).
Why? Uncertainty equates to a wider variety of economic outcomes, generating caution among shorter-term investors.
Further, stocks had been priced for perfection, leaving them vulnerable to short-term shocks.
Market declines are inevitable. Since the Feb. 19th S&P 5002 peak, the index is down 4.7% (through Feb. 24, St. Louis Federal Reserve).
- There have been 16 instances when the S&P 500 has fallen at least 5% (but not more than 20%) since the bull market began in 2009 (CNBC).
No one knows the bottom. Market turbulence can be unnerving but historically has been short-lived.
Your response during volatility becomes paramount. If you have a well-constructed investment plan, the inevitable rise in volatility is less of a concern and you are well-positioned when anxieties eventually subside.
Created 2020-02-26 16:16:23
