Since mid-February, financial markets have been in turmoil. The broader equity market indices have retraced from recent all-time highs by approximately 15-20%. The speed of the decline from all-time highs to bear market territory is unprecedented. However difficult it is to avoid headlines on the COVID-19 virus and the extreme volatility in the energy markets, it is important to view these events within the framework of one’s personal objectives and investment horizon. The markets have experienced these downturns before and we, as advisors, always keep in mind the possibility of these extreme events when helping clients formulate their long-term plans. Historically, the best course of action has been to focus on the facts and separate strategic investing from these headlines.
Doctors, government officials, and businesses are learning more about COVID-19 every day and the public will likely not understand the true cause & effect of this virus for several months, if not years. There is no doubt of the uncertainty created and the ongoing economic fallout, but we believe the markets will ultimately climb this daunting wall of worry and incrementally return to days of normalcy. Although the COVID-19 virus presents a novel challenge, history does provide some insight into not identical but comparable outbreaks. The chart below exemplifies the resiliency of the market when faced with drawdowns from historical viral outbreaks. Without belittling the severity to one’s health, investors should remain focused on the long-term view of their portfolio and asset allocation.
The oil markets have also increased broader market volatility with Saudi Arabia’s recent decision to flood the market with cheap oil with the aim of flexing its muscles and undercutting its competition. This oil glut further exacerbates market uncertainty as the market is a forward-pricing mechanism. The more uncertainty present, the more volatile and difficult it is to find an appropriate valuation. There have been many oil price wars in the past, and the historical impact has also been relatively short-term with an agreement to follow quickly after these sharp moves down.
Regardless of the headlines and historical implications, it is hard to ignore our emotions when our respective account balances are negatively impacted. Similar to the consistent message of long-term investing, the below chart was created by Forbes in hopes of providing an easy to follow description of market cycles. Again, markets have been here before and will likely revisit similar conditions in the future.
Ultimately, the DWAM team is ready to answer any questions about your specific financial situation. Please do not hesitate in reaching out to our office. We can be reached at 901-435-4250, or info@dwassetmgmt.com.
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