Good afternoon. This market update was initially supposed to go out sometime Monday, but my wife and I ended up traveling on Monday to be with my oldest son and his wife for the birth of their second child (our second grandchild). Mom and the baby are doing great and It was a joyous occasion for us all.
Last week the stock markets had some excitement of their own as the markets fell quickly due to the effects of the coronavirus. For the week, the Dow fell 12.4%, the S&P 500 lost 11.5% and the Nasdaq shed 10.5%. This week has been a rollercoaster ride as markets had a huge rebound on Monday (Dow gained over 1200 points) only to lose 2/3rds of those gains Tuesday and then take them back on Wednesday. Volatility indicators climbed and are still historically high so we should expect to see more of this type of action.
In response to the sudden market slide, the Federal Reserve Chairman Jerome Powell released a statement saying that while the fundamentals of the U.S. economy remain strong, the coronavirus outbreak “poses evolving risks to economic activity” and that the Fed would “act as appropriate” to support the economy. This statement signaled a rate cut would be coming and along with oversold conditions, the table was set for the Monday rebound. In the bigger picture though, what concerns investors is how severely the effects of the virus are going to felt globally and the impact on supply chains and the production of goods in all markets around the world. The question that no one can answer is how big or small of an effect this will it be?
The move in the stock markets last week reached the “correction” level and this indicated that we needed to take a step back and become a little more conservative. I agree with the Fed Chairman that the US economy remains strong, but, as mentioned, the concern is how the virus impacts the economies of the rest of the world and what impact they will have on the US. In the coming weeks and months, we most likely will experience more volatility based on similar historical circumstances. During this time frame, opportunities may present themselves that should be taken advantage of if possible. The rebounds should allow us to take profits and the dips, even now, can present some good buying opportunities.
Because this is an election year and we now have this virus spreading around the world, the media could possibly be more exuberant than normal (is that possible?). So as always, don’t get caught up in the hype and feel free to email or call me with any questions or concerns.
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