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As the coronavirus “Covid-19” makes its way around the globe, people are scrambling to wrap their arms around the latest epidemic and what it means.
Thus far, it has reached 109 countries and appears to be headed for more. The overwhelming majority of cases to date have taken place in China, the country of origin, and it remains to be seen how effective containment efforts will be elsewhere.
As arguments begin to break out as to whether this is “merely an epidemic” or a “full-blown pandemic,” it seems pretty moot. The virus is spreading, and it is a valid and real health concern for many.
Making matters worse, this is also the first global crisis we have faced in the “social media” era. The echo-chamber the last several weeks has been incredibly loud, and incredibly hard to avoid. And the “regular” media is not helping.
Headlines today are centered on the sharp market drop around the globe, which is being tied to the increase in reported Coronavirus (COVID-19) cases outside of mainland China. Over the weekend, South Korea, Japan, Iran and Italy all saw a surge in cases.
As we wrote last week, this epidemic is not something for
the world to brush off and take lightly. Unfortunately, reports to this point
have been all over the board in terms of what it does to people, how it
spreads, and even where it came from. This lack of information (or outright
misinformation) is what leads to abrupt panic-selling like we saw in financial
markets today.
Make no mistake, this virus has made an impact on global
economics. Rarely outside of wars have large portions of the global economy
been effectively shut down. Recent estimates from Bloomberg suggest that China
is currently operating at 50% capacity, and for obvious reasons, there has been
a major impact to the travel sector.
One of the silver linings (and I use that term with
hesitation) that is occurring simultaneously with this market drop, however, is
that now that the disease has spread beyond China’s notoriously private
borders, information and data about the virus should become much more accurate,
and many of the best minds in the world finally have access to study its
impact, its origins, and work toward a cure.
The current coronavirus breakout seems to be on everyone’s minds, and rightfully so. As the number of infected people continues to grow, so might some of our anxiety about the spread and potential impact of the virus. While we don’t know how many people the virus will infect and the length of this viral cycle, we do know that you may have some questions about how this might impact your investments.
With that, we want to share three investment-related themes to keep in mind. First, don’t give in to the urge to take action. The news stories about the virus can be downright scary, but we need to remember that market prices react immediately to both good and bad information. To potentially make money or avoid potential losses, we would need to trade before it is news. And, of course, we don’t know the future, so any action would be a guess, and therefore, any positive result would be luck.
Second, we need to keep perspective. This isn’t the first new virus we’ve seen, and this won’t be the last. SARS, Zika, H1N1 and others have all come and gone. While the concerns at the time were the same (e.g., How quickly will it spread? Will there be a cure? Will it slow down the global economy? Will it impact my investments?), our society has figured out how to overcome past viruses, and markets have done the same.In fact, markets have short memories regarding epidemics.
Just like that, the 2018 tax changes that were supposed to be mostly permanent have been altered. In the following paragraphs, our associate financial planner, Justin Gabriel, breaks down the pertinent details of the new law that may be applicable in the years ahead.
On Friday, December 20th, the President approved a new $1.4 trillion spending bill. Attached to this deal is a piece of legislation that has been sitting around for the better part of this past year. The Setting Every Community Up for Retirement Enhancement (SECURE) Act will be enacted prior to ear end.
With this act comes notable changes to retirement accounts that will begin immediately when the calendar flips over to 2020.
Often as investors, we are forced to endure prolonged
periods where it feels like our investments are stuck in neutral. These
stretches of time can test our patience and resolve every bit as much as when
markets are plummeting. The natural instinct is to believe that something must
be broken, so we are tempted to shake things up a bit.
A headline on CNBC yesterday morning read, “The
Stock Market is Exactly Where it Was One Year Ago.” If you do not track the
market regularly, you may be thinking this is impossible. Every few weeks, we
seem to read headlines that state that we have hit all-time market highs. What
is missing from those headlines, however, is when was that last high…and what
happened in between?
It was hard to miss the headlines about escalating trade tensions between the U.S. and China last week—and hard not to notice the up-and-down market activity that went along with it. But what, if any, long-term impact does trade policy have on the economy and, by extension, our portfolios?
The commentary below comes from ourDirector of Investment Strategy at The BAM Alliance, Kevin Grogan. Kevin explores this topic in the following article, and reminds us, once again, that although it remains to be seen how the events of this latest news cycle will play out, your evidence-based financial plan is built to anticipate and withstand market risk.
In addition, here is a link to an article by Brett Arends of Marketwatch, who has been a vocal critic of President Trump in the past. In this article, he offers a sharp rebuke of some of the news being reported on the actual costs of these tariffs.
Nonetheless, these negotiations continue to drag on, and there is no way to know how they are going to play out, nor how the market is going to react when an agreement is finally made.
The end of this week marks the winter solstice. There is not a lot about that specific day to be excited about. On one hand, it is the darkest and shortest day of the year. On the other, it is the middle of winter, so it’s cold! As an added kicker, this year we even get to find out that day whether our Federal government is going to be “shut-down” (again), but I digress.
To me, the symbolic nature of this day is that it is essentially breathing life to a new year. Every day from this point forward is a little bit brighter, and it lasts a little bit longer. It is a great reminder that all dark and cold seasons come to an end. It also means we are getting closer to spring and warmer days again.
This has not been the most fun quarter (or year) to be an investor. Almost everything around the globe is down. It suddenly feels dark and cold in financial markets and there is no shortage of scary headlines out there…especially if you go looking for them.
Over the course of this year, we have spoken and written numerous times about how rare of a year 2017 was in terms of market volatility. With US markets rising around 20% and foreign markets rising nearly 30%, investing seemed risk free and easy.
While us saying this is one thing, we wanted to offer some additional perspective and evidence on what has and continues to transpire. Days like yesterday (Thursday, 10/25) give hope that the drawdown is over and a recovery has begun, but the reality is that we simply do not know when the recovery will fully take stride, and there very well may be more turbulence along the way.
First and foremost, for those that want the deeper dive, here is a link to a recent article by Larry Swedroe, the Director of Research for the BAM Alliance: An Awakening Bear? I highly recommend it for those that have the capacity and interest in understanding further. He has been at the forefront of BAM and the investment research community for decades, and is among the rare people that is extremely well respected in both the academic and investment communities. Further, his commentary is always specific to the style of investing we employ.
Among the many notable comments Larry provides in his article, he offers the following chart of market declines of 5% or greater during a calendar month since 2009:
In essence, these drops are not all that uncommon. In fact, prolonged drops that can last several weeks are not either, as evidenced by the consecutive months in 2010 and 2011. In addition, the 2016 decline actually lasted well into February, but had recovered by the end of the calendar month and therefore, is not included.
As you arise this morning, you likely know already that the global stock market fell very sharply yesterday. It was the worst day for markets since this past February. The selloff continued overnight in foreign markets, pushing them downward toward their 20-month lows.
Predictably, the news media has a wide variety of things to blame for the simple reality that there were a lot more sellers yesterday than buyers, fueled heavily by machine-trading. Some blame interest rates rising, while others blame trade wars and tariffs, and others blame the Fed.
We need to stop trying to blame anyone or anything, and just accept that markets do this from time to time. Make no mistake, it does not feel good when it happens, but it is far more common than we realize.
And most importantly, times like this are why high-quality bonds are so important to have in a portfolio.
As a brief reality check, this is the 23rd time that the S&P 500 has dropped 5% or greater from its peak since March of 2009. On average, the recovery period has been 42 days. All of them seemed like the world was falling apart at the time. And each time, the market recovered. Continue reading “October Market Volatility”
(Edited from commentary by Larry Swedroe, Director of Research for The BAM Alliance)
For some time now, investors have been very concerned about the potential for a global trade war – a war in which there are not any real winners. That, of course, worries investors, especially those who were taught that the Smoot Hawley Tariffs enacted in 1930 was a major contributor to the Great Depression. While it certainly did not help, the causes of the Great Depression go way beyond tariffs, and the depth of the depression is mostly attributed to poor monetary and fiscal policy decisions by Central Bankers around the globe. The concerns have left many wondering what (if anything) they should do.
First, whenever an investor is concerned about any issue, they should stop and ask themselves this question: Am I the only one who knows about this? Clearly the answer is going to be no. As believers of the idea that market prices already reflect all publicly known information, it is reasonable to discern that stock markets not only reflect what we are reading in the news, but also the odds of these events actually occurring. Thus, unless you somehow believe that you know more than the collective wisdom of all the institutional investment managers, hedge funds and mutual fund professionals (who do about 90% of the trading, and thus set prices), it is too late to act.
Second, ask yourself if you think folks like Warren Buffet are aware of the situation. Again, the answer will surely be yes, and he isn’t doing any selling. Unless you believe you are smarter than Buffett, it is wise to take his advice and avoid trying to time the market.
Third, seek real analysis on the impact, not the opinions of talking heads on the television. Oxford Economics, a global leader in economic analysis and forecasting, calculated the tariffs with China would shave 0.1% – 0.3% off of GDP the next two years. This is a far, far cry from the doomsday scenarios being painted by the news media. We must reiterate here that forecasts are rarely perfectly accurate, but it undermines the reality that the results of a trade war are likely less than most believe. Continue reading “Musings on Trade Wars”
