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March 17, 2020

Market Volatility: Consider the Effect of Past Health Crises

By all accounts, the recent drop in the market was largely driven by ever-increasing fears about the potential effects of the coronavirus (COVID-19) and its ultimate impact on the global economy. Although many market observers contend that the market was overvalued and due for a correction anyway, the unpredictability, strength and suddenness of the historic tumble was unnerving for even the most seasoned investors. If recent volatility is causing you to consider cashing out of your stock holdings, it may be worthwhile to pause and put recent events into perspective, using history as a guide.1

What does a look back tell us?

Since the turn of the millennium, the market’s negative response to health crises has been relatively short-lived. As this table shows, approximately six months after early reports of a major outbreak, the S&P 500 bounced back by an average of 10.47%. After 12 months, it rebounded by an average of 17.17%. Although there are no guarantees the current situation will follow a similar pattern, it may be reassuring to know that over even longer periods of time, stocks typically regain their upward trajectory, helping long-term investors who hold steady to recoup their temporary losses, catch their breath and go on to pursue their goals.

Epidemic Month End* 6-Month Performance, S&P 500 12-Month Performance, S&P 500
SARS April 2003 14.59% 20.76%
Avian (Bird) Flu June 2006 11.66% 18.36%
Swine Flu (H1N1) April 2009** 18.72% 35.96%
MERS May 2013 10.74% 17.96%
Ebola March 2014 5.34% 10.44%
Measles/Rubeola December 2014 0.20% -0.73%
Zika January 2016 12.03% 17.45%

Source: Dow Jones Market Data, as cited on foxbusiness.com, January 27, 2020. Stocks are represented by the Standard & Poor’s 500 price index. Returns reflect the change in price, but not the reinvestment of dividends. The S&P 500 is an unmanaged index that is generally considered to be representative of the U.S. stock market. Returns shown do not reflect taxes, fees, brokerage commissions, or other expenses typically associated with investing. The performance of an unmanaged index is not indicative of the performance of any particular investment. Individuals cannot invest directly in any index. Actual results will vary.
*End of month during which early incidents of outbreak were reported.
**H1N1 occurred during the financial crisis, when, as during other periods, many different factors influenced stock market performance.

What should you do?

Focus less on daily market swings and more on the fundamentals; that is, review your investment objectives and time horizon, then revisit your asset allocation to make sure it’s still appropriate for your needs. Market downturns sometimes offer the chance to pick up potentially solid stocks at value prices, which could position a portfolio well for future growth. Though there are no guarantees that stocks will perform to anyone’s expectations, some investors use downturns as opportunities to buy stocks that were previously overvalued relative to their perceived earnings potential. The right approach during all kinds of markets is to be realistic. Have a plan, stick with it, and strike a comfortable balance between risk and return.

Questions? Contact a CFS Financial Advisor.

After considering the points here, if you still have questions about how changing market dynamics are affecting your portfolio, contact a Financial Advisor. We’ve contracted with CUSO Financial Services, L.P. to provide investment services, and you can schedule a complimentary consultation for help with all your financial planning needs.2 Make the most of your credit union membership today and put your money to work.

Schedule a Complimentary Consultation

1Based on data reported in WSJ Market Data Center, February 28, 2020, and March 2, 2020. Performance reflects price change, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Putting current market volatility into historical perspective can help you stay the course during turbulent times. Dollar-cost averaging does not ensure a profit or prevent a loss. Such plans involve continuous investments in securities regardless of fluctuating prices. You should consider your financial ability to continue making purchases during periods of low and high price levels. However, this can be an effective way for investors to accumulate shares to help meet long-term goals. Asset allocation is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss.
2Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members. For specific tax advice, please consult a qualified tax professional.


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