Unless you've been in a cave for the last several months, you have probably been bombarded with news about the coronavirus (COVID-19) pandemic. The disease, which began in Wuhan, China, has spread to over 120 countries and has infected upwards of 150,000 people, leading to over 5,000 deaths. With a mortality rate of roughly 3.4%, COVID-19 has made the world take notice. The threat of COVID-19 has caused businesses from Disney World to Urban Outfitters to shut down and canceled many events from music festivals to the NCAA's March Madness basketball tournament. With so many closures and cancellations, COVID-19 impacts the financial market in a major way. But what does that mean for you?
How the Coronavirus Impacts The Financial Market
On February 19th, 2020, the S&P 500 reached an all-time high of 3,386.15. As of March 9th, 2020, the very same index closed at 2,746.56. In a thirteen-day span, the S&P dropped 18.89%. Yes, this is a sharp decline in the market but the market tends to react harshly to any form of uncertainty. I can't tell you how the market is going to respond next and anyone who tells you that they know what it will do is nobody you should take financial advice from. But why is the market reacting the way that it is? That is a question with several answers.
Global Supply Shock
When the market first began its downturn, it was a response to fears and uncertainties that related to whether companies would be able to get parts they needed to remain in production. With so many plants shut down in China, the manufacturing industry was taking a major hit, even in the U.S. markets.
Global Demand Shock
As many people are choosing to avoid crowded public spaces, there are fewer people out purchasing non-essential goods and services. Nations such as Italy and Spain are imposing strict curfews and travel restrictions on their citizens. Here in the United States, travel to and from Europe has been put on hold. Each of these impositions impacts the consumer's ability to buy, leading to a market decline.
On Thursday, March 12, 2020, the Fed stepped in with some emergency liquidity measures to try to alleviate some of the funding stresses in the markets. This has been a trickle-down effect from the initial outbreak and the measures to contain it. As a result, we've seen this, and the two other ways that COVID-19 impacts the financial market in just a couple of weeks causing them to have a steep and rapid downturn.
The Potential Financial Benefits of Coronavirus
It may seem crass to look at the fear response of this outbreak and think that there's a positive to all of this. However, there are some very clear financial benefits to what is taking place. For one, Saudi Arabia has engaged in a price war over oil with Russia. Cheaper oil prices mean cheaper gas prices at the pump. Now is a great time to fill up the tank and maybe even buy some reserves.
Air travel has taken a massive hit as the COVID-19 outbreak has grown. Fewer people are traveling by plane and the airlines have lowered prices by as much as 34% in some cases in an attempt to lure passengers. If you have any plans for traveling — even if it's months down the road — buy your tickets now! You will likely never find them this cheap again.
Finally, stock prices have fallen dramatically. If you're looking to invest in the stock market, you will find some of the best pricing available during this crisis. However, this is NOT financial advice and I am making no suggestions on investments. The purpose of this article is to educate you on the impact that coronavirus has had on the markets. You should always seek the advice of your Certified Financial Planner before making any investment decisions.
Should You Invest While The Market is So Uncertain?
We have a quote by Warren Buffett on the wall in our office that reads, "When others are greedy, be fearful and when others are fearful, be greedy." I can't think of a better statement to apply to this situation. It makes sense to buy right now. Rebalancing your portfolio makes sense, right now. But panicking and pulling all of your money out of the market and burying it in mayonnaise jars around your property doesn't make much sense. I'm not advising you to buy stocks or to rebalance your portfolio. I am suggesting that you conduct your own due diligence to see what makes sense for your needs and goals.
Whether you should invest in the market at this time is a decision that really is unique to you. Knowing how soon you will need the money you're investing is a critical factor in making an informed decision. The average bear market decline is about 28% but it usually occurs over a long period of time. The declination of the markets because of COVID-19 has been rapid and it's difficult — more likely, impossible — to predict how or when it will recover. With that in mind, the time horizon is something that any investor should consider when they are thinking of whether or not they should take advantage of low market pricing.
If you're a young professional that can leave their investment in the market for twenty years or so, then it probably makes sense to invest. However, if you're looking at investing as a means to fund your retirement in a few years, putting money into a bear market might carry significantly greater risk.
However, this is NOT financial advice and I am making no suggestions on investments. The purpose of this article is to educate you on the impact that coronavirus has had on the markets. You should always seek the advice of your Certified Financial Planner before making any investment decisions.
What This Means to You...
The outbreak of the Coronavirus has put everything on hold. These are uncertain times and for many of us, having a helping hand to guide us through this market crisis would come as great comfort. Schedule a call with your financial advisor to discuss your options. If you don't have a financial planner or just aren't satisfied with their service, please schedule a meeting with our team today. We can assess your portfolio to determine if purchasing or rebalancing is the right move for you!