Coronavirus Part II
To our clients and associates,
First I want to compliment all of you for remaining calm as the markets around the globe gyrate daily. You are doing exactly the right thing at times like this and we believe over the life of your portfolio, holding steady with your well-diversified positions is truly the best course of action.
An important point to remember for those holding bonds in their portfolios is that our fixed income positions mostly consist of US Treasuries and investment-grade corporate bonds. When money flees from stocks, where does it go? You guessed it: for the most part it moves into safe havens such as those I just mentioned. So while the stock portion of your portfolios is responding to the downturn, the bond portion is doing exactly what it is supposed to do by moving in the opposite direction.
I found an article in the Wall Street Journal dated March 3. It was written by Adena Friedman, the President and CEO of Nasdaq, Inc. and is so well written, I have taken direct quotes from it to share and paraphrase with you. (The Nasdaq market exchange focuses primarily on technology stocks.)
The Nasdaq (index) saw record volumes last week. Similarly, Nasdaq U.S. equity volumes this week reached 2.7 billion shares traded, compared to an average of 1.4 billion over the past year. Wall Street’s fear gauge, the VIX, more than tripled last week, reaching the highest level of volatility since the 2008-2009 financial crisis.
Markets have historically been quick to recover from pandemic threats. Since the 1994 pneumonic plague, at least 10 other significant health events – among them SARS, avian flu and Zika – have rattled global markets, and in eight of those cases, stocks climbed more than 10% after 12 months, once investors had properly gauged the threat.
More broadly, there have been 26 market corrections of at least 13% since 1946. It has only taken around 4 months on average for markets to recover to pre-correction levels.
One U.S. company announced on February 24 that it had shipped vials containing a first batch of coronavirus vaccine to the National Institute of Allergy and Infectious Diseases. Clinical trials involving about 20 to 25 healthy volunteers are expected in April.
Investors will have to evaluate health-related risks in the weeks and months ahead, and they may well see more volatility. But the efficiency of U.S. markets and the diligence of government and industry researchers working to develop a vaccine should give Americans hope. The coronavirus is the kind of problem that defies simple solutions, but markets are responding as they should – infusing capital for the most promising solutions.
This is Al again. Our underlying investment principle remains as it has always been: our low-cost, globally diversified portfolios are designed over time to weather market challenges whether caused by geo-political events, currency issues, war or pandemics. While this is no guarantee of success, we believe it is truly the single best way to provide the highest probability of reaching your financial goals.
As always, please feel free to call regarding your personal financial situation. We are here to serve you and that includes sometimes providing confidence during difficult times.
One final reminder (which will probably be quoted on my gravestone): Past performance is not indicative of future performance. Loss of principal and/or loss of portfolio value are possible.
All my best,
Al Wooster
Past performance is not indicative of future performance. Loss of principal and/or loss of portfolio value are possible.