The Coronavirus and Market Volatility

The Cost of Trying to Time the Market

Source: Dimensional Fund Advisors LP
Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
In US dollars. For illustrative purposes. The missed best day(s) examples assume that the hypothetical portfolio fully divested its holdings at the end of the day before the missed best day(s), held cash for the missed best day(s), and reinvested the entire portfolio in the stocks in the S&P 500 at the end of the missed best day(s). Returns for the missed best day(s) were calculated by substituting actual returns for the missed best day(s) with zero. Performance data for January 1970–August 2008 provided by CRSP; performance data for September 2008–March 17, 2020 provided by Bloomberg. S&P data provided by Standard & Poor’s Index Services Group.
Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful.
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Do Downturns Lead to Down Years?

Downturns-not-Downyears

Source: Dimensional Fund Advisors LP
Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
In US dollars.
Data is calculated off rounded daily returns. US Market is the Russell 3000 Index. Largest Intra-Year Decline refers to the largest market decrease from peak to trough during the year. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes.
Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful.
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Long-Term Investors, Don’t Let a Recession Faze You

With activity in many industries sharply curtailed in an effort to reduce the chances of spreading the coronavirus, some economists say a recession is inevitable, if one hasn’t already begun.(1) From a markets perspective, we have already experienced a drop in stocks, as prices have likely incorporated the growing chance of recession. Investors may be tempted to abandon equities and go to cash because of perceptions of recessions and their impact. But across the two years that follow a recession’s onset, equities have a history of positive performance.

Data covering the past century’s 15 US recessions show that investors tended to be rewarded for sticking with stocks. Exhibit 1 shows that in 11 of the 15 instances, or 73% of the time, returns on stocks were positive two years after a recession began. The annualized market return for the two years following a recession’s start averaged 7.8%.

Past performance, including hypothetical performance, is not a guarantee of future results.

Downturns, Then Upturns Growth of wealth for the Fama/French Total US Market Research Index

Downturns, Upturns

Source: Dimensional Fund Advisors
Fama/French Total US Market Research Index: The value-weighed US market index is constructed every month, using all issues listed on the NYSE, AMEX, or Nasdaq with available outstanding shares and valid prices for that month and the month before. Exclusions: American Depositary Receipts. Sources: CRSP for value-weighted US market return. Rebalancing: Monthly. Dividends: Reinvested in the paying company until the portfolio is rebalanced.
(1)Nelson D. Schwartz, “Coronavirus Recession Looms, Its Course ‘Unrecognizable,’” New York Times, March 21, 2020; Peter Coy, “The U.S. May Already Be in a Recession,” Bloomberg Businessweek, March 6, 2020.


You’ve realized the risk, might as well stick around for the return.

  • A Broad market index tracking data since 1926 in the U.S. shows that stocks have generally delivered strong returns over one-year, three-year, and five-year periods following steep declines.
  • Just one year from a decline of 10% or 20% returns were higher than the long term average of 9.6%. And the return after a 15% decline was within half a percentage point of the average.
  • Looking three and five years past declines of 10%, 15% and 20% also shows annualized returns averaged higher than the long term average.
Source: Dimensional Fund Advisors

The Coronavirus and Market Volatility

Fears about the COVID-19 outbreak led the Standard & Poor’s 500 Index into a correction (a drop of 10% or more from a recent high) in just six days, the fastest time to a correction from an all-time high ever. However, a few days afterward, stocks rallied, with the S&P 500—which recovered more than 40% of its losses from its February 19 close to its midday low on February 28—and other indexes notching record point gains. Since then, stocks have been extremely volatile.

When markets fluctuate, sticking to the plan you’ve laid out becomes more important than ever.

We’ve been here before

Market downturns and bouts of volatility aren’t rare events—even those that grow out of health crises such as the SARS (severe acute respiratory syndrome) outbreak in 2003 and the Zika virus outbreak in 2016. The key to getting through such turbulent times is to understand that these market conditions don’t last forever (see the figure below) and that markets can recover more quickly than you might think.

A health crisis downturn doesn’t last forever