Coronavirus = Market Correction
The past couple of weeks in the markets have been mind-boggling. Our markets went way up, hit all-time highs, and now have gone way down. Every day we are hearing more and more about the coronavirus, and until there is a resolution, we will unfortunately continue to experience market volatility.
Technically speaking, the market is currently in a correction mode. What does this mean? A “correction” is defined when market indexes are down anywhere between 10% and 20%. Somewhat ironically, this big drop occurred only one or two weeks after all the major market indexes hit all-time highs.
- The Dow Jones Industrial Average hit an all-time high of 29,568 on February 12th; it is now down 14% from that high point.
- The NASDAQ hit an all-time high of 9,828 on February 20th; it's now down roughly 13%.
- The S&P hit an all-time high of 3,393 on February 19th; it's now down roughly 13%.
If the market indexes go down more than 20% for an extended period of time—generally two months or longer—then we would be officially in a “Bear Market”. Until then we will be in correction mode.
You might recall that a similar sequence of events occurred in the last quarter of 2018. All the major indexes hit all-time highs in September and October, and then they all dropped rapidly close to 20% down by December. Then in January of 2019, we were on the way up and finished out the year with the S&P up 31%. What a ride!
There is a two-fold reason the markets are pushing downward right now:
- Many economists and analysts have been calling for and expecting a correction due to the long-term nature of the recent bull market. The thought has been that a correction was, in fact, way overdue and that equity valuations were too high.
- There are concerns about the potential impact of the Covid 19 virus on US companies that have footprints in China or other countries where the virus has already spread. This is affecting areas such as manufacturing, design, production, and distribution centers. For example, Apple has already forewarned its investors that its revenue and profits will be impacted by the virus.
What Should You Do with Your Investment Portfolio Right Now?
I know this is all disconcerting, but here is my advice: Don’t panic. This, too, shall pass.
And guess what? There is a big difference between your portfolio being down in value and you actually experiencing a loss. You only lose when you sell!
If you are a UWM client, you know we’re big believers in keeping “boring” positions in your account: fixed-income assets such as bonds, preferred stocks, and CDs, and stocks that pay dividends or, as I like to say, pay “rent” to your portfolio. During the cycle we are in now, just hold on tight.
High-growth players and those with a big footprint in China will be hit the hardest. The ones that won’t be as badly impacted are industries that provide services, we all need: utilities, wireless phone services, and consumer staples such as food and beverages. (The Wall Street Journal has a great chart emphasizing this point; it’s behind their paywall but check it out if you can.)
So, my best advice? Start building a “wish list” of issues you would like to invest in or add to in your portfolio. You always want to buy low and sell high, right? Well, in the coming weeks and months, you’ll have the opportunity to watch some of your want-to-buys go on sale. So, get ready!