Broker Check

Corona Virus and Market Perspective

March 23, 2020

Dear clients,

We at Harford Financial Group have been reading many perspectives at recent volatility that is taking place in the markets. We want to share these insights with you so that you have multiple perspectives in making decisions relative to your long-term plan. The following commentary is from Nick Murray who provides many insights to financial professionals like us. The takeaway that we hope that you get is that we had other situations like this that on average have caused 13% drops or more. Part of what allows you to earn the rates of return one gets investing in stocks is the fact that stocks can be so volatile. One can expect that stocks will drop at least 30% on average every 5 years. The challenge is that this is not like clock work and when it happens we cannot time like an eclipse or some other event. Please reach out to us if you have any specific questions. Keep your long-term goals in perspective. The reason we have stocks in our portfolios is that they are the best long-term hedge for inflation. Since 1960, the cost of living in terms of inflation has gone up 9 times and the S&P 500 has gone up 60 times.

On Friday, January 17 – after a spectacular 40% runup that started the day after Christmas 2018 – the Standard & Poor’s 500-Stock Index closed at 3,329.62.

Two weeks later to the day – last Friday, January 31 – the Index closed a little over three percent lower, at 3,225.52. (Indeed, more than half that damage was done on Friday.)

We have therefore been invited by financial media to suspect that the blended value of 500 of the largest, best financed, most profitable businesses in America and the world has “lost” three percent – with more “losses” to come – due to the outbreak in China of a new strain of coronavirus.

Permit me to doubt this, and to suggest that you – as goal-focused long-term investors – join me in doubting it.  

I do not claim to have any idea how far this outbreak will spread, nor how many lives it will claim, before it is brought under control. I’m reasonably certain that many (or perhaps most) of the world’s leading virologists and epidemiologists are working on it, and I believe that their efforts will ultimately succeed. Clearly, this is nothing more (or less) than my personal opinion.

But if the rich history of similar outbreaks in this century is any guide, this would seem to be a reasonable hypothesis.

I draw your attention to:

  • SARS in 2003-04, also originating in China 
  • The bird flu epidemic in 2005-2006
  • In 2009, a new strain of swine flu
  • The Ebola outbreak in the autumn of 2014
  • The mosquito-borne Zika virus outbreak in 2016-17

Without belaboring the point: the super-spreader of SARS – a fish seller – checked into a hospital in Guangzhou on January 31, 2003, basically infecting the whole staff. The epidemic exploded from there.

On that first day of the litany of epidemics cited above, the S&P 500 closed at 855.70. Seventeen years and six epidemics later (including the current one), this past Friday the Index closed fairly close to four times higher. I’m confident that you see where I’m going with this.

As always, I welcome your inquiries around this issue. In the meantime, I think the most helpful – and certainly most heartfelt – investment advice I can offer would be that you turn off the television set.