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Avoiding an Irrational Response to Irrational Markets

The big news this week is the fear of global pandemic from the Coronavirus. The S&P 500 has now experienced a 14% correction in less than a week. This weekend’s reading will focus specifically on news related to the Coronavirus and historic market reactions after periods of heightened volatility.

Avoiding an Irrational Response to Irrational Markets (Eric Nelson, Servo Wealth)

The instinctual reaction to news of global pandemic is to sell due to emotion. As Nelson points out, it is important not to make long-term financial decisions based on short-term emotion. Over the last 40 years, stocks have dropped intra-year by an average of 14% annually, yet have finished 30 out of the last 40 years positive. Volatility is a normal condition in the equity markets.

Continue to focus on what you can control: (1) creating a long-term financial plan considering multiple market scenarios, (2) structuring a portfolio that fits with that long-term plan, and (3) staying disciplined through market cycles.

As the Correction Becomes Official, Beware Worst-Drop Lists (Fisher Investments)

A good reminder to tune out the noise. The press tends to exacerbate negative news in order to increase viewership and drive click-bait. All of this coverage is meant to increase emotion. As the author states, “Volatility cuts both ways. Good volatility follows bad. This is a bad stretch, but at some point, a good stretch will cancel it out. Better times await. Stay cool now to be ready for them.”

Q&A on COVID-19: The Economy, Markets and What Investors Should Do (Jeffrey Kleintop, Schwab)

This is an update to Schwab’s continuing coverage of the economic impact from the Coronavirus. Companies have begun lowering earnings guidance for the first half of the year. Ultimately, earnings recovery in the 2nd half of the year is contingent upon the virus’ containment. Although the future is unknowable, Schwab continues to expect a rebound later in the year. According to Worldometer, active cases have dropped from their peak of 58,747 on February 17th to 43,735 as of yesterday, a drop of 25% in 10 days.

As always, please share your thoughts on these articles or suggest any articles you think we should highlight in future posts.

For those who have not done so, this is a good time to revisit your long-term plan and stress test the portfolio under various market conditions. Please give us a call if you would like to set up a time to meet.


This newsletter contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

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