We recognize that recent news of the spread of the coronavirus, coupled with the market volatility we have experienced over the last few weeks can be worrying. The uncertainty is being felt around the globe, and it is unsettling on a human level as well as from the perspective of how markets respond.
Market declines can occur when investors are forced to reassess expectations for the future. The expansion of the outbreak is causing worry among governments, companies, and individuals about the impact on the global economy. Apple announced earlier this month that it expected revenue to take a hit from problems making and selling products in China. Australia’s prime minister has said the virus will likely become a global pandemic, and other officials there warned of a serious blow to the country’s economy. Airlines are preparing for the toll it will take on travel. And these are just a few examples of how the impact of the coronavirus is being assessed.
The market is clearly responding to new information as it becomes known, but the market is pricing in unknowns, too. As risk increases during a time of heightened uncertainty, so do the returns investors demand for bearing that risk, which pushes prices lower. Our investing approach is based on the principle that prices are set to deliver positive future expected returns for the assets we own.
We can’t tell you when things will turn or by how much, but our expectation is that bearing today’s risk will be compensated with positive expected returns. That’s been a lesson of past health crises, such as the Ebola and swine-flu outbreaks earlier this century, and of market disruptions, such as the global financial crisis of 2008–2009. Additionally, history has shown no reliable way to identify a market peak or bottom. These beliefs argue against making market moves based on fear or speculation, even as difficult and traumatic events transpire.
At Onyx, we have worked with our clients to develop a long-term plan they can stick with in a variety of conditions. We have considered a wide range of possible outcomes, both good and bad, when helping our clients establish an asset allocation and plan. Those preparations include the possibility, even the inevitability, of a downturn. Amid the anxiety that accompanies developments surrounding the coronavirus, decades of financial science and long-term investing principles remain a strong guide.
Our best advice to our clients (and advice we are following for ourselves) is to “stay the course” and continue to follow the investment plan we have created for you, and wash your hands. A good plan with a long term focus will be an invaluable tool for getting through the market downturn we are currently experiencing, along with fluctuations we fully expect to see in the future.
If you have any concerns you would like to discuss further or would like to have our firm create an individualized, long term plan for you, please give us a call at 208-522-6400.