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The Coronavirus Outbreak Is Spreading: Markets Take A Hit

    

SUMMARY: News that the coronavirus has spread to South Korea, Italy, Japan, and Iran, has led to massive selling around the globe, with many European markets closing down more than 4%. U.S. stock markets are selling off hard as well, with the S&P 500 Index down nearly 3% in early trading on Monday.

 

Wes-Corona-WeeklyMarketCommentary(1)_optimized

 

 

News that the coronavirus—known as COVID-19—has spread to South Korea, Italy, Japan, and Iran, has led to massive selling around the globe, with many European markets closing down more than 4%. U.S. stock markets are selling off hard as well, with the S&P 500 Index down nearly 3% in early trading on Monday.

“Although the fear over the pandemic is real, and the potential slowdown in the global economy could hurt 2020 corporate profits, let’s not forget that big down days are part of what long-term investors have had to accept,” said LPL Financial Senior Market Strategist Ryan Detrick.

As shown in the LPL Chart of the Day, an average year has more than five separate days with at least a 2% correction for the S&P 500 Index. Even last year, with stocks up 30%, there were five separate days that saw the S&P 500 close down at least 2%.

 

although-uncomfortable-big-drops-are-normal

 

 

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The United States had held up relatively well in the face of the growing COVID-19 crisis. In fact, according to LPL Research’s friend Sam Stovall of CFRA, the S&P 500 actually gained 1.6% a month after the first reported coronavirus case in the United States on January 21. As the chart below shows, stock market gains historically have been normal after the initial outbreak of various health crises have reached the United States.

stocks-have-held-up-well-to-the-coronavirus-so-far

Now, could the coronavirus impact the global economy more than previous epidemics and pandemics? That’s clearly a strong possibility, as global supply chains have come to a halt in the world’s second largest economy (China). The good news, though, is corporate America just reported a very impressive earnings season, so the chances of an impending U.S. earnings season recession appear quite low. Read more about the recent earnings season in Corporate America Impresses.

Lastly, we’d like to stress that pullbacks and market corrections happen and are part of long-term investing. In fact, since 1980 the average year has experienced a pullback from peak to trough of 13.7%. Even more impressive: Looking at the 29 years that stocks have been green since 1980, we see the average year had a correction of 10.9%!

stocks-can-go-down-even-in-up-years

We will continue to monitor the impact of the coronavirus situation very closely. In the meantime, we would suggest that long-term equity investors consider staying the course and contacting their financial professionals for specific recommendations.

 

Contact Wes 

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

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