March 12, 2020 Update: Perspectives on Global Market Volatility and Economic Uncertainty
Perspectives on Global Market Volatility and Economic Uncertainty
We understand how frightening the news has been lately regarding health, safety and economic conditions across the globe. So we’d like to provide some perspective. We’ll also update you about what we’re doing about it.
As I’m writing this, the U.S. stock market, as measured by the Standard & Poor’s 500 Index (SP500), has dropped about 19% from the recent high-point on February 19, 2020.1 The extent of this drop is normal. Yet, the rapid decline over 18 trading days is reminiscent of 2008 to 2009—when we last had a recession. Obviously, no one can predict how the U.S. and other global economies will be affected by the market and the health and safety concerns.
Let’s put the economy into perspective. Since 1945, the U.S. economy has experienced 11 recessions, or one every 6.8 years on average.2 The last recession ended in 2009, over 10 years ago. Understanding the cyclical nature of the economy, we shouldn’t be surprised or alarmed if the economy slows down. Things have been good in the economy and the markets for a long time. And, while recessions are a normal and healthy part of the economic cycle, we concede that they are not fun to endure, and everyone’s personal experience will be different.
The markets continue to adapt to fresh data. And so do we. We prefer to be proactive rather than reactive, so we’ve already made some changes in investment portfolios in an attempt to build more resiliency in the face of a tough market environment. In addition, we’ll likely be taking further action on your behalf, by thoughtfully harvesting tax losses and rebalancing where and when we believe we should.
What should you be doing about the current tough market environment? First of all, if you're feeling anxious, take a deep breath. Then, put your own portfolio results into perspective by expanding your view. Look back one, five or ten years, not just one or two months. You might be surprised and pleased to see your results—even in spite of recent declines. Also, look at these possible bright sides:
When stock prices drop, it can be like you’re buying at the “sale price.” If you’re investing regularly in a 401(k), IRA, or similar plan, you’re better off today because you’re buying more shares for the same amount of dollars, than you probably were a month or so ago.
Interest rates are also very low. That’s good for borrowers. So, you might look at refinancing your mortgage or other debts, if you have any.
Please talk with us if you have any questions or concerns, or would like to talk about your personal situation. We’re here to help you navigate the turbulent times and bumpy roads of investing.
Paul Hynes, CFP®
President and CEO