The markets continue to struggle in response to world events.
- Widespread global efforts to combat the spread of coronavirus (COVID-19), including the many cancellations, closures and restrictions, will have significant economic impact; therefore, we believe the odds of a recession have increased.
- The equity markets have fallen accordingly and have now technically entered a Bear Market. This downturn is our first Bear Market in 11 years, which is defined as a decline of 20% or more from the market high.
- As we said before, no one knows how the corona virus will play out. However, if you rely on historical data, the virus will likely be contained in a reasonable period.
- Fear is high and creates irrational behaviors.
What does this mean for investors? As we have mentioned many times, we have certainly been due for a market decline as well as a recession. Recessions are painful and unavoidable, and their starts are unpredictable. It is important to step back and think calmly. First, the typical recession lasts for 10 months. The bulk of the market decline typically happens before and during the early stages of a recession. In fact, the average market return during a recession is positive. The beginning of the market recovery will likely start before the recession ends. The second point to remember is the market is considered a leading indicator and predictor of the future, not a responder to current or past news. As of now, the market is already down approximately 26% from the high. A “normal” recession sees average market declines of 20-30%. Statistically, one could argue that we have already witnessed 80-85% of the decline. We should, therefore, be closer to the bottom than the top, which leads us to believe that long-term investors may want to increase equities slowly, particularly if the market falls much further.