Fear from the Coronavirus (COVID-19) is affecting everyone. It’s almost impossible not to hear the news on any media outlet. Despite the daily updates on COVID-19, now is not the time to make any rash decisions concerning the allocation of your 401K plan. A lot of what has been occurring in the markets is panic selling and there is no way to allocate for these types of situations. Now is not the time to panic!
Recent history concerning viruses and the markets is oftentimes attributed to overreacting by both the market and investors. This leads to significant buying opportunities along the way since most of us continue to put money into our 401K plans every pay period.
Over a 38-day trading period during the height of the SARS virus in 2003, the S&P 500 Index fell by -2.8%. During the Zika virus, which occurred at the end of 2015 and into 2016, the market declined by -12.9%. There have been 10 other similar examples since 1981 – guess what? They all ended up passing and the market recovered – it even hit new highs. So, don’t panic!
Reflecting back on the economic data and history can make people appear unsympathetic and calculating, however, it provides reference points. While we have experienced 159,000 deaths from the coronavirus with over 4.83 million cases reported, the pace at which these numbers are growing is actually beginning to decline, particularly here in New Hampshire.
The U.S. Economy
From an economic point of view, the real question is how this will impact the U.S. economy over the course of 2020. In short, probably not too much. The U.S. is relatively insulated with a great health system. The country started 2020 with solid economic data. According to The Conference Board, Q1 2020 GDP was down -5.0% (annualized) over the last quarter of 2019. However, May and June showed a solid rebound as the economy began to reopen following nationwide closures of many businesses.
Earnings & Job Growth
Revenues and earnings from companies that are highly exposed to China will most certainly be affected, but lower earnings in the first half of the year should be made up by a strong rebound in the second half of the year because people are still spending money. Demand remains strong and the job market continues to rebound. According to the U.S. Bureau of Labor Statistics, unemployment rates were down in 42 states and nonfarm payroll jobs increased in all 50 states and the District of Columbia.
Viruses come and go; COVID-19 will be no different. The Spanish Flu of 1918 claimed the lives of 675,000 people in the U.S. Could this happen again? No one knows. The U.S. rebounded from the Spanish Flu when all was said and done. A drop in earnings or economic activity will be short lived and made up for in the year to come. Again, now’s not the time to panic! Stay invested and talk to the advisors at IFA. Their team of advisors can help you navigate through life’s financial decisions in good times and uncertain times.
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