Market Monday: How did we get here?
(WRDW/WAGT) -- Dakota: Current market situation: How did we get here?
• Investors have become worried about the potential economic impact as the virus continues to spread to across the globe.
• The story of 2020 was supposed to be the afterglow optimism of a signed trade deal between the U.S. and China and the positive developments related to Brexit.
• That narrative, however, has obviously been substantially altered by the viral outbreak of the coronavirus, which at least for the first half of 2020, could produce material disruptions to the flow of manufactured goods around the world.
• U.S. economic growth is likely to be lower this quarter as efforts to contain the virus have impacted international business activity, travel and companies’ production and sales in China.
• [New] Today’s volatility was a reaction to new concerns about the coronavirus epidemic and the failure of Saudi Arabia and Russia to agree on an oil production cut extension causing oil prices to fall.
• [New] Stock trading was halted for 15 minutes after a sharp decline triggered a trading curb. These so called “circuit breakers” are designed to slow trading down to give investors the ability to understand what’s happening in the market.
Dakota: What is likely to happen next?
• It could continue to take time for the market to reset expectations and digest virus outcomes. As a result, this could lead to more near-term market volatility and pressure stock prices further.
• We believe the market can eventually look through this event, and governments, businesses, as well as investors, will likely see better days in the future.
• We do not claim to be an expert on viral outbreaks. We’ll leave it to other specialists to predict how aggressive the virus spreads, how long it takes to come under control, and when its impact starts to fade on human health.
Dakota: What should people do?
• Stay the course and remain calm. It is seldom beneficial to long-term investment success to react to these types of quick dislocations in the market.
• Don't let your emotions affect your financial decisions. Review your financial plan with me to make sure it's still on track for your long-term goals.
• Investors should keep a level head, put new money to work strategically, and continue to align their portfolio with their appetite for risk. Your portfolio should be diversified to make sure you have an investment mix that matches your goals and risk tolerance.
• Stock markets are notoriously unpredictable in the short term. The fluctuations we’re seeing are a fact of life. They should not drive investment strategy.
• A market correction or dip may be a good time to step back and re-assess your portfolio:
o If you are far from retirement and are investing regularly in the market (such as contributions to your workplace retirement plan or an IRA), the volatility could work in your favor through dollar-cost averaging.
o Those who are within a few years of retirement tend to be more sensitive to short-term market moves and may want to consider making some adjustments to their portfolios – but wait until the market rebounds. This could include keeping more of your assets in less volatile investments that can help diversify stock market risk.
o If you are retired – stay the course, but it might be wise to take some = money off the table when the market hits new highs. Be diversified and reallocate the next time the market is on the upswing.
• Remember to be patient and always be sure you are managing to risk, not return. Now is not the time to take money out—if you need to do so, wait for the markets to rebound. Keep in mind you don’t want to buy high and sell low.
• Emotions run high when there are big market swings and fear can be a bit motivator –don’t let your fear get the best of you.
• It’s a matter of investor behavior, not investment behavior – remember we can’t control the market; we can only control our reactions to it.