I hope you and your family are well! Yesterday, March 9th, was the eleventh anniversary of the final bottoming process of the bear market from 2007 to 2009. How ironic that the world elected to celebrate this iconic anniversary with, you guessed it, another panic attack.
At yesterday's opening level of 2,764, the S&P 500 was down over 18% from its all-time high, recorded on February 19. Declines of that magnitude are fairly common occurrences as the average annual drawdown from a peak to a trough since 1980 is close to 14%.1 But such a decline in barely a month is noteworthy, not for its depth but for its suddenness.
As we all know by now, the precipitants of this decline have been: the outbreak and economic impact of the Coronavirus, the extent of which cannot be predicted; and most recently, the onset of a price war in oil. That last one is surely a problem for everyone involved in the production of oil, but it's a favor for those of us who consume it.
The common thread here is the unknown. We simply don't know where, when or how these phenomena will play out. In my experience, the one thing that financial markets dislike the most is uncertainty. Unlike the markets, we have perfect control over how we respond to this uncertainty. Or, ideally, how we don't respond. Because the last thing in the world that long-term, vision and goal-focused investors like us do when the whole world is selling is, you guessed it again, sell. In fact, I welcome your inquiries around putting cash to work, though we could go lower.
On March 3, billionaire investor Howard Marks wrote, “It would be a lot to accept that the US business world – and the cash flows it will produce in the future – are worth 13% less today than they were on February 19.” How much more true this observation must be a week later, when they are down even further. This too shall pass.
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1 JP Morgan Asset Management's Guide to the Markets
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.