The financial markets have had a wild week that can only be described as panicked, with significant 3%+ swings up and down on a daily basis. We continue to believe that sticking to your long-term plan is the best course of action in good times and in bad. On January 24, near the market peak when the outlook seemed much rosier, we wrote about how we were trimming equities in most client accounts to keep portfolios at their beta targets. Likewise, most clients will notice some incremental equity buying this week and next as we stick to our clients’ long-term plans.
We absolutely acknowledge that the virus is having a major impact on the global economy. This can be separated into two phases.
Stage 1 was the major disruption to the Chinese economy as the outbreak which started in Wuhan led to mass quarantines and work stoppages across the country. According to the latest Chinese statistics and leaders of global corporations with major operations in China, things have improved significantly over the past week and are slowly normalizing.
Stage 2 is the spread of the virus outside of China. This is what is causing the recent financial market panic, most notably the fact that no one knows how widespread the issue is in the US due to the lack of available test kits. It is highly likely that the number of documented cases in the US will rise significantly in the coming weeks as thousands more people are tested. At this point, we believe the market expects this as well as the fact that the US economy will have a short-term disruption. As we wrote previously, whether things turn out better or worse than expectations is not something we at GGS will speculate on.
It is notable that prior major pandemics in the past 100 years have only had temporary impacts on their most affected economies.1 This is the base case in which we are operating. For long-term investors, this means that staying the course and sticking to plan is the correct response. For our clients personally, please stay safe, stay up-to-date on the risks in your area and preventative measures, and encourage others to do the same.2