Coronavirus – What Should Investors Consider?
I write this after hours on Monday, February 24. The Dow Jones Industrial Average (Dow) fell 1,031.61 today, its third-largest daily point drop ever. The sell-off was generated by fears about the impact coronavirus might have on our global economy, and therefore our global markets.
I am not predicting what will happen next. As we go to press, markets have continued to drop. We may be in for a sustained decline, or we may see a rapid recovery. Who knows? Before you’re tempted to react to headlines and toss your long-term investment plan, let’s put the situation in perspective.
First, consider the point drop in proper context. While the popular press is busy dramatizing the point drop, consider this: In 1987, the Dow dropped 508 points on October 19, from 2,247 to 1,739. That’s far fewer points. But as a percentage, it’s a 22% drop. Today’s 3.6% drop was minor in comparison.
Second, markets have endured similar epidemics. We’ve had 5 major virus outbreaks since 2003: SARS, bird flu, swine flu, Ebola, and Zika. The Dow was at 7,561 at the outbreak of SARS and is now triple that at 27,960. Following the onset of all five outbreaks, the S&P 500 ended up rising during the next 12 months by 20%, 18%, 35%, 10%, and 17%, respectively.
Third, coronavirus isn’t our only global concern. So far, the WHO has reported 79,000 confirmed cases of coronavirus cases and 2,618 deaths. This is not happy news, but it’s worth noting that the CDC reported 35.5 million cases of flu in the 2018–2019 U.S. flu season alone, with 34,200 deaths. And yet the market never took specific notice of that. The point is, the connection between breaking news and long-term market returns is tenuous at best, and best ignored over the long haul.
Lastly, consider the counsel of billionaire investor Warren Buffett. When Forbes asked for his take on today’s headlines, Buffett said “We’re buying businesses to own for 20 or 30 years … We think the 20- and 30-year outlook is not changed by the coronavirus.”
We couldn’t have said it better than that.
John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™ founded Alliant Wealth Advisors in 1995 and has over 30 years of experience as a financial professional. In his free time, he’s an avid long-distance runner, a sport that requires discipline, patience and vision. John applies these same skills to his professional pursuits: He helps families and retirement plan sponsors adopt a patient, disciplined approach to overcoming financial challenges and reaching their distant goals along a clear path. Learn more at www.alliantwealth.com.