Last week was quite a tumultuous week for the markets. In just one week, the S&P 500 shed over 12% of its value, which places it in “correction” territory. The precipitant for the upheaval seems to be the concern over Coronavirus, which has spread from its original environs in China. But is that really the case?
The markets have seen an extraordinary run up in value since November, 2016. On November 1, 2016, the S&P 500 index closed at 2,111.72. Last Friday, before this correction occurred, the S&P 500 index had risen to 3,373.23, which is a 59% gain in just over 3 years. That sort of trend is usually not sustainable and this time proved to be no different.
Let’s put it in perspective: even after last week’s market correction, the S&P 500 is still up over 45% for the past 3 years. I believe the market was slightly overvalued and, given any good reason, the markets were going to correct themselves.
That said, fears about Coronavirus persist so let’s put that in perspective as well. We have a history of similar outbreaks in this century, including:
- SARS (also originating in China), 2003-2004
- Bird Flu Epidemic, 2005-2006
- A new strain of Swine Flu, 2009
- Ebola outbreak, autumn of 2014
- Zika virus outbreak in 2016-2017.
Given this history, it’s worth noting that the S&P 500 index, on January 31, 2003 (just prior to the SARS outbreak) closed at 855.70. Today, even after this correction, it stands at over 2,900. It’s also worth noting that some of the world’s leading scientists are feverishly working to bring this virus under control and (of course, this is my opinion) if history is any guide they will succeed.
To be sure, market declines are always uncomfortable. Nobody likes to see the value of their investments decline. But corrections and temporary declines are a normal function of markets, and the best response is to revert to the investment plan we have in place and ride through it.
As usual, if you have any questions or concerns, please don’t hesitate to contact me.
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 It is not possible to invest directly in an index.