Coronavirus and its Impact on the Markets

The markets have reacted strongly to the Coronavirus this past week, adding to weekly losses that have not been seen since 2008. There is a chance that the next outbreak could have larger implications for the global economy, however the market has shown remarkable resilience in the face of prior epidemics as seen in the chart below.

Events such as Coronavirus naturally lead to several important questions regarding the markets, your investments, and most importantly, your financial plan. What should I do given a large stock market sell-off? How will this short-term negative performance affect my long-term financial plan and goals? Is this downturn in the market somehow different than in years prior? Let us start off first by addressing what Coronavirus is and its impact.

In short: nothing. In events such as this it is best to avoid all out pandemonium, which can be difficult to do, especially when news sources are bombarding you with information. As the graph above so succinctly highlights: the markets are likely to recover in the near- to long-term. Being out of the market and panic selling is by far the worst thing investors can do for their portfolios and their financial plans. One thing remains true over history: the market has an incredible way of rebounding after low and even extremely low periods. This is something you as an investor do not want to miss out on when the dust settles.

This downturn is different in terms of what caused it. It may also differ because of its impact on an increasingly globalized and connected economy. Finally, it is different than prior epidemics due to the sheer increase in the amount of information made available via social media and online news sources. How it is very much the same as prior downturns is that over the long-term we anticipate markets to recover.

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