With the global equity markets “selling-off” the past two days I thought I would take a few minutes and try and give you some perspective on what has happened. With Tuesday’s decline, the S&P 500 index is down a little over 7% from its all-time high that was just achieve a little over a week ago. So as dire as the news has been, this has been a very “normal” type of reaction by investors. During a typical year in the equity markets, the S&P 500 will drop by at least 10 % on average. Drops in the index of 5% or more happen on average at least twice a year. So, despite what you may be hearing, this is a typical annual type of pull-back in equity prices. Warren Buffett came out this morning and reiterated that these are great opportunities to either invest new monies or reallocate one’s portfolio to those assets classes that have “sold-off” in price. We will use this opportunity to do as Mr. Buffett suggests!
The apparent reason for the recent reaction by equity investors is due to the belief that the reaction to the Corona Virus in China, as well as other countries around the world, will have a negative impact on the global economy. I believe they are correct in their thinking as China has shut-down large sections of their country to try and prevent the spread of this virus. Having said that, I believe this will have more of a short-term impact on the global economy and in the future, we will talk about the Corona virus just like we talk about SARS, the Ebola scare, and the Avian bird flu. I do not want to minimize any of these events, they are just not a reason to change one’s investment plan.
The best advice I can give at this time is to limit the amount of news you are watching, wash your hands frequently and use hand sanitizer (the flu is really bad this year in the U.S even though no one is talking about this). Please let us know if you have any questions or comments you would like to share.
Brett S Carleton, CFP