Stock Market After the Coronavirus

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Hey Taylor - There’s clearly a lot going on and I’m trying to see if I can filter out some of the noise. With this virus spreading, how much of what’s happening is an overreaction, especially when it comes to the market? - Eric

Hey Eric - This seems to be the question on everyone’s mind - are we taking the right steps and what’s the end game? I wish I could give you a clear answer, but this is uncharted territory, which is the primary cause of all the panic.

             With regard to the stock market, the strong swings are unfortunate but not too surprising. With a large percentage of investors reacting more to market moves than the industries pushing the needle, we always have to deal with an element of overreaction. However, as illustrated by the two rate drops with little positive impact, the normal tricks for boosting investor confidence aren’t really working.

             What we’re seeing right now, and will continue to see for presumably the next couple months, are supply and demand issues that haven’t influenced the market in a long time. First it was a disruption in global supply from China, then other countries quarantined and compounded those supply problems, and now we have rushes on inventory and everyday consumers socially isolating. Enticing interest rates can usually get people to spend more, but when goods aren’t available and health officials are advising against human contact, that urge to spend drops significantly.

             That said, the market and the companies that drive it will weather the storm. This isn’t great timing for anyone just entering retirement, but no one should be doing anything crazy with their IRA. I understand the feeling you get in the pit of your stomach when your net worth drops by a big percentage, but there’s an end to the financial portion of this crisis. When it comes to your health, you should be taking every precaution available to you. As for your retirement account, take a deep breath and wait it out.

             To address the health angle, the measures being taken might seem extreme and perhaps, in hindsight, we’ll feel that they were. However, it seems that a novel virus spreading at this rate should concern everyone; upending our lives with school, events, and restaurant closures in the short term will help us get back to healthier days with fewer lasting problems.

             I’m erring on the side of caution with this situation. That means less socializing and more handwashing, and it also means leaving market accounts alone and investing more as prices fall and fluctuate. We might not be able to see it yet, but there’s a light at the end of the tunnel. Take care!