Wow, that was REALLY FAST

The extreme stock market volatility and unbelievable news headlines from around the world accelerated this past week.

This week alone has already seen TWO of the largest drops in the Dow Jones Industrial Average’s long history (we recorded the 4th largest drop today and the 12th largest drop on Monday).  We’ve also seen THREE separate days where the Dow gained over 4.5% so far this month, making this in unprecedented time of large movements both up and down.  After the large decline today, global stock markets are now firmly in bear market territory.

The Coronavirus fears and the economic impact of fighting the spread of the virus dominate the headlines and have certainly been a portion of the volatility.  Another less talked about issue adding to the volatility is a global oil price war between OPEC and Russia that has collapsed the price of oil and threatens to harm the US energy sector.

Hey Buddy, Can You Spare Some Toilet Paper?

It’s been fascinating watching how panic and fear can cause people to load up on things they don’t actually need.  Yes, we all need toilet paper, but we don’t need cases of it.  But people are fearful that if they don’t buy some now, they might not be able to get some when they need it.

A similar phenomenon appears to be happening in the markets, but instead of toilet paper investors are rushing to stock up on “safe” assets like cash and US Treasuries.  Right now the 10 Year US Treasury is yielding 0.81% while the dividend yield on the S&P 500 stocks is almost 2%.  So investors are rushing into something that won’t gain more than 0.81%/yr over the next ten years because they’re afraid of the short term economic and market outlook. 

Is there any good news?

There is good news on the Coronavirus news front.  China has claimed that they have passed the peak of the outbreak and the number of new cases is declining quickly.  South Korea has also shown a decline in new cases and they are reporting 67 deaths out of 7,869 cases (which puts their fatality numbers at less than 1%, which is on the low side of initial forecasts).

And here in the US, it’s been reassuring to see local public and private sectors take control and make difficult decisions to slow-down the contagion of the virus.  While it might be upsetting to have sporting events and cultural attractions shut down, it’s inconvenient to have schools and colleges closed, and it’s a headache to have travel restrictions imposed, all of these things are being done to prevent the spread of the virus and if successful it means we get back to “normal” sooner (whatever the new normal will be).

What to do now? In the past, we have coached clients to pre-pay big expenses and spend some gains when the market was strong.   Now, the more prudent action is to slow unnecessary distributions from accounts and even invest extra cash.  Please call to discuss any changes you are considering and how they may impact your long-term planning goals.

Meanwhile, we are here with you and here for you.  We will continue to monitor market conditions, regularly re-balance portfolios back to their designed allocations, and take advantage of tax-loss harvesting where appropriate. 

A client today reminded us that, it’s interesting how a ‘threat to my health puts a threat to my wealth into perspective.’