Yesterday markets had their largest single day drop since October of 1987 in the wake of the Coronavirus concerns. We also saw all major sports in U.S. suspend their seasons and the NCAA cancel both the Men’s and Women’s basketball tournament. Perhaps the rationale was that there is already enough madness this March.
On a serious note, the concerns over the economic impact resulting from cancelations, suspensions and layoffs resulting from Coronavirus are real. Travel and Leisure industries were the first to be impacted and the rest of the market has followed suit. As public officials begin to take proactive measures to stem a mass influx of Coronavirus cases on the medical infrastructure, cancelations are sure to become the norm moving forward. These are unprecedented times for all of us, and certainly within the financial markets.
What does this mean from an investment perspective? I was asked this morning, “What is a bear market?” A bear market is a term used in the financial markets when an index drops 20% from its former peak. Wednesday, the Dow Jones Industrial average dropped 20.3% and the Nasdaq and S&P followed suit Thursday when they crossed below that twenty percent threshold.
So is it time to invest? Historically, by missing the 10 best days in the market over a 20-year period, you would cut your returns in half, and half of the markets best days in history have happened during bear markets. Further, by missing the best 30 recorded days in the market, your long-term cumulative return would actually be negative, so yes you should be invested. Yet, at this time we must be careful not to fall victim to behavioral biases. Trying to time the market can be costly! Just because markets are down consecutive days does not mean the markets are “due” and if we get a short-term rally we should not assume markets will continue to rally. We should ensure we are invested consistent with our long-term goals and tolerance for risk and those factors shouldn’t be impacted by short-term market events.
During these uncertain times, the Investment Team at Old Second Wealth Management continues to monitor these situations closely and how they affect the fundamentals of the economy. As always, should you have any questions please reach out to your Relationship Manager or Investment Officer
Rich Gartelmann, CFP® – (630) 844-5730 – email@example.com
Steve Meves, CFA® – (630) 801-2217 – firstname.lastname@example.org
Brad Johnson, CFA®, CFP® – (630) 906-5545 email@example.com
Mike Cava, CFA®, CFP® – (630) 281-4522 firstname.lastname@example.org
Mike Demski – (630) 966-2430 email@example.com
Jacqueline Runnberg, CFP® – (630) 966-2462 firstname.lastname@example.org
Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.