The fear and recently announced closures and cancellations caused by the COVID-19 has certainly caused an extensive selloff in the markets this week. While concerns of contracting the virus and the potential severity of it are real, the uncertainty of the entire situation is a chain around the neck of the stock market. If there is one thing we know for sure, it is the fact the stock market does not like uncertainty.
On top of all the uncertainty about the coronavirus, the oil industry took a hit when Russia and Saudi Arabia decided to start a price war which cratered the price of oil to unprofitable levels for many oil related companies. Experts can argue over which is a bigger problem for the US Economy (oil or the virus), but it’s certain that these two hits at relatively the same time, have caused much turmoil. All this is coming off a tremendous 2019 performance for both the stock and bond markets, providing almost three years of average returns in just the one year, which made the markets ripe for a pullback regardless of recent events.
Regarding investment planning, each investor needs to make sure that their asset allocation is properly set based on their time horizon and risk tolerance, and can withstand this type of market pullback. Having your allocation set to specific allocation targets, then rebalancing to these targets when weightings drift is very important to the recovery of an investment portfolio. While day-to-day market movements are always uncertain, the strong underlying fundamentals of our economy can set the stage for a nice recovery. As with the previous outbreaks (see the prior blog), one thing that is certain is they all caused temporary downturns. Key word being temporary.
As always, in times of uncertainty, don’t hesitate to reach out to us to discuss your personal situation and to determine if any changes need to be made to your overall allocation. Certainly, if any major event is pending or has happened in your life (retirement or pending retirement, job loss, divorce, inheritance, etc.), you should review your portfolio allocation. Please let us know if any events have occurred or are pending in your life.