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Beat the Short-term Market Jitters

Christopher LaPorta

February 26, 2020

The recent market volatility as investors react to the news of the spread of Coronavirus has made many uncomfortable. The market seems to be trying to price the impact the quarantines in China will have on global growth. 

As you consider the above, it is helpful to remember: 

  • Recessions are rare events as it stands, let alone a recession driven by a disease outbreak.
  • Statistically, all global health scares dating back to 1994 (Pneumonic Plague) have ended in a positive return in the S&P 500 (these statistics consider the time frame 3 months before and 6 months after declaration).
  • Even though the 10-year US Treasury is hovering around 1.30, the yield curve is not inverted between the 10-year and 2-year U.S. Treasury.  The federal funds rate is above the 10-year US Treasury but with almost no inflation it is likely the Federal Reserve will change there course if this continues and cut rates.
  • Over the past few months, the U.S. dollar has been strengthening. 
  • When the financial markets are in turmoil and account balances start to fall, there is a strong temptation to ask us to "do something" to stem any perceived losses. Yet it is often the case that staying the course-or doing nothing-proves to be the better path. 

The most recent example of a market scare/correction was in Quarter 4 of 2018. Consider the following example: 

A hypothetical 60% stock and 40% bond portfolio that stood at $1 million on the morning of November 1, 2018, would have lost 5.7% of its value by Christmas Eve. Yet selling the portfolio at that time and fleeing the markets, even if briefly, would have cost an investor tens of thousands of dollars in two months, versus the alternative of staying invested.  

The chart above further demonstrates that staying the course can pay off while abandoning the course can be costly.

At ATG Trust Company, we work hard to make sure our clients are in portfolios where the understand the risk that are associated with them and can withstand the market volatility. Any changes should be made because of changes in your life, not changes in the markets.  

If you have questions about making portfolio moves, please give us a call to discuss.