A lot has transpired in the last couple of weeks with a record number of 3% moves in the market. The fastest 10% correction from the top, the 10 year treasury yield falling below 1%, a 30% decline in crude oil prices in one day, an emergency Fed rate cut of 50 basis points and the equity markets hitting the circuit breaker for trading to be halted! We have had such a roller coaster ride in equities last week, which really could be nerve wrecking for any investor and can quickly turn you risk averse.
We often take a myopic view of things and only see what is in front of us rather than focusing on the fact that in the long term, these bumps just qualify as noise. To put things in context, the decline in crude oil will have a bigger impact on the oil and gas sector across the world and may also blow up a few hedge funds. This could reverberate across the credit markets affecting some US banks and could change the oil and gas sector landscape forever. Any impact from the Coronavirus will have short-term dislocation in economic activity but it will be temporary. According to JP Morgan “the fear of COVID motivates the self-insurance measures households and corporates are taking, it is near-impossible to anticipate the timing and level at which growth and earnings expectations trough until the virus's momentum slows”.
With the current uncertainty and lack of clarity of the economic impact from the decline in oil prices and the Covid pandemic, I expect the market to be volatile for the foreseeable future. Also, just as the market (equity) topping is a process, market bottoming is also a process and it could take a while for the market to form a bottom. For example, in 2011, the S&P 500 saw a total of 48 consecutive trading sessions with VIX closing above 30. The S&P 500 also saw a record 2% up or down close in 2011 due to uncertainty about the economic growth.
If you had panicked and sold equities last week when they swung 3% to 4% on a daily basis thinking that you were protecting your capital, you would be disappointed to see the result - the S&P 500 ended up 0.62% for the week! That’s why daily swings are not important, even weekly and monthly returns hardly matter when you take a multi-year investment approach.
The events in the last two weeks have given everyone a good gut check about their risk appetite. And if you think that you need to revisit your allocation and risk in the portfolio, please feel free to contact your Wealth Advisor at Marshall & Sterling Wealth Management.
Stock investing involves risk including loss of principal.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
All indices are unmanaged and may not be invested into directly.
The Nasdaq 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks.