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

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.

Read More