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Staying the Course Amidst a “Circuit Breaker” — Coronavirus, Oil, and Market Volatility

By: Mark Paccione, CFA, CFP®, BFA™
3 Minute Read

Global stock markets are well into “correction” territory with the decline from the S&P 500 Index’s recent high exceeding 10 percent and approaching bear-market territory. The volatility is in large part due to the uncertainty surrounding the COVID-19 coronavirus that has spread internationally since its first detection in Wuhan City, China with confirmed cases in multiple countries, including the United States.

In addition, markets received another shock as it was revealed that OPEC and Russia could not agree to proposed oil production cuts, resulting in a price war that will likely cause daily oil production to increase meaningfully in the immediate future. Oil prices dropped significantly with West Texas Intermediate Crude Oil down more than 24 percent on Monday, and heavy selling in the stock market triggered a “circuit breaker.” A circuit breaker is a limit put in place over 30 years ago to stop trading for 15 minutes in order to reduce market volatility and massive panic sell-offs.

What we know:

  1. The coronavirus will have a significant, short-term economic impact as growth slows due to decreased travel, event cancelations, and less consumer traffic overall.
  2. Consumer confidence has been negatively affected and may deteriorate further. This is important to watch as the consumer in the United States represents approximately two-thirds of U.S. GDP.
  3. S. markets have historically been volatile during an election year. We would anticipate further volatility in July during the conventions and again in October leading up to Election Day.
  4. History has shown that markets are resilient and investors that have stayed the course have benefited over long periods of time.
  5. Lower interest rates and decreased fuel costs may prove beneficial to many individuals and corporations as they’re able to refinance higher interest loans and pay less in energy expenses.

No one knows how long the market volatility will last. It may endure another day, another week, or another several months. While many economists and market experts are suggesting the possibility of a brief recession followed by a v-shaped bounce, no one knows for sure, so we will continue to monitor markets closely.

We do know as investors that markets can be stressful, and market declines are an inevitable part of investing. Those that are willing to stay the course and stick to their long-term strategy are usually rewarded. While the correction has been painful to watch in the short-term, it will eventually lead to good buying opportunities at better price points for long-term investors.

That said, there are a few actions you should consider now:

  1. Revisit your broader financial plan – take this opportunity to organize your finances, set goals, and seek out a qualified professional if you need help.
  2. Take a long-term view – markets experience frequent drawbacks. Investors should prepare accordingly by holding a diversified asset allocation that matches their risk tolerance.
  3. Rebalance back to your target allocation – market movement may mean that the target mix of stocks and bonds in your portfolio is out of alignment. Rebalancing allows you to sell those assets that have outperformed relative to other portfolio assets while purchasing those assets that have underperformed. We view this as buying low and selling high.
  4. Increase your contributions – saving more increases your chances of meeting your retirement goals. The regular frequency of retirement plan contributions results in dollar-cost-averaging, which means investing a fixed amount of money in the same portfolio at regular intervals through the ups and downs of the market.

Please reach out to a member of the Curi Capital team at 984-202-2800 should you have any questions about your portfolio, are unsure your portfolio is setup to whether market volatility, or, more importantly, to achieve your long-term goals.

Mark Paccione, CFA, CFP®, BFA™
Mark Paccione is Curi Wealth Management, LLC’s, Chief Investment Officer, based in Raleigh, NC.
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