The Coronavirus is Infecting the Financial Markets

Matt Wright, CFA® |

The COVID-19 coronavirus has been creating some volatility in financial assets over the past month or so, but for the most part investors had been looking beyond it as many assumed it would be a shortlived problem. In the past few days, however, more concern has mounted that the disease may not be as contained as hoped and that there could be a greater impact to the global economy than initially estimated. This has resulted in several notable down days in stock markets around the world.

Of course, no one actually knows exactly what the impact will be. Financial markets are forecasting mechanisms, constantly adjusting to the best estimates of what the future holds, but that doesn’t mean any particular estimate is correct. Bouts of market volatility are an inescapable part of investing and are not unusual. In just the past few years, we’ve seen volatility rise following the initial Brexit vote, the 2016 U.S. Presidential election and numerous times during the U.S. trade war with China, etc.

While we can’t predict the course the markets will take, we do expect heightened volatility in the nearterm as the news ebbs and flows around the coronavirus and its potential impact to the economy. Keep in mind that global stocks had a very strong year in 2019 (+26.6%) and are down slightly (-1.8%) in 2020 through Monday, 2/24 (both returns are for the MSCI All Country World Index NR USD).

We also like to remind our clients during times like these that while the media is very focused on the stock market, little mention is usually made of the bond market. Since most of our clients have a mix of stocks and bonds, you are missing the full picture if you ignore the benefits of bond diversification in your portfolio. Through Monday, 2/24, high quality bonds (as measured by the BBgBarc US Aggreate Bond Index) had gained 2.8%. Thus, a balanced portfolio has not been seeing the dramatic swings that a stock-only portfolio has.

As always, our goal is to keep focused on your long-term goals and how to reach them. We don’t believe that reacting to short-term market volatility is helpful in that regard. However, if at any time your financial situation changes, we do recommend contacting us to discuss if any changes to your plan should be considered.