Negative events often cause the market to take an emotional over-reaction.
These situations are usually short lived, and a quick recovery soon follows. Those who react out of panic get left behind and usually miss out on the rebound. The current Coronavirus situation is packed with fear, panic and over-reaction. But there are actually genuine economic components that cannot be ignored. Factories in China are really closed. Conventions and cruses are actually being canceled. The NBA has suspended its season. All of these actions and reactions affect our economy and the global economy. Fortunately, the US economy has been very strong and on its own could probably handle this crisis like a young athlete would fight off a flu. Internationally that may not be the case. Much of the world has not enjoyed the recent growth the US has been experiencing. Some countries have been on the brink of financial crisis. For these countries it could be more like that same flu infecting the resident of a care facility. The results can be much more serious. The main risk for our economy is how intertwined we are to all of these other countries.
Our immediate issue is uncertainty.
That is the biggest problem for markets. The market hates uncertainty. We don’t know how widespread or how deadly this virus will be. Some people expect the worst and some claim there is nothing to worry about. But we don’t really know.
What we do know is that this current state of confusion and contradiction will eventually end. This virus will run its course and will do its damage. Life and markets will eventually return to normal. I expect at that time normal may look a little different. Just as “children of the depression” struggle with spending money we will probably emerge with handwashing habits permanently implanted in our brains. More people will probably continue to work from home and fist bumps may be the new professional greeting. We know the virus is real, the financial reaction is real, but we also know both are temporary.
All the market needs is an ounce of certainty.
Once we get some real answers, once we can visualize control, once we know the rules, the financial recovery will begin. That day is coming. It will probably come sooner than you think. We know it will come; we just don’t know when. If you are invested and have experienced a decrease in value why bail now if it will eventually come back? It is probably a good time for a rebalance and maybe look for some bargains. I would look very cautiously at your foreign investment funds. Most of them have been performing poorly prior to this event and will probably be the very last to recover. Call your Financial Advisor. Review your personal risk tolerance and financial goals. Those who have kept money on the side waiting for an opportunity. This may be that opportunity.