While Covid-19 has the world in its grasp, the markets are fluctuating rapidly. Governments are working to prevent economic collapse, and many people are wondering how – or if – they should respond.
First, let’s take a look at what factors are most affecting the markets right now:
Covd-19 and the 2020 Economy
The novel coronavirus is massively affecting the markets right now. Entire countries are locked down to prevent the spread of the virus, and that includes parts of the United States. This means that many, many people have lost jobs or are working in only a limited capacity.
Ever since China sounded alarm bells over the virus in January, the markets have jumped around quite a bit. But now that Covid-19 is spreading quickly across the U.S., the country is edging toward a recession, if it’s not there already.
I’ve talked over the past year about the signs of an impending recession, so we knew this was coming. But because this is an unprecedented situation, it’s hard to tell exactly how the economy will behave.
The markets have historically recovered quickly, typically within a few months, of an epidemic or pandemic. But the measures needed to slow down this pandemic could have more far-reaching effects than with a typical health-related market slowdown.
Bond Yields Fall
Bond yields have fallen, with the 10-year treasury dropping to about 0.94% and the 30-year treasury falling to 1.56% (as of 3/20.)
The yield declines are beneficial for anyone who has invested in long-term bond ETFs. But with the bond market, just like the stock market, things could change very quickly.
Federal Reserve Slashes Rates
The Fed slashed interest rates to zero to hopefully offset economic instability. That’s concerning because the last time we saw rates that low was in 2008. Rates will likely stay low until the markets stabilize again.
What Should You Do?
Rates are as low as they can go, the markets are erratic and the future of the economy is uncertain. What moves can you make to set yourself up well now, as well as when things calm down?
I’ve talked before about why active investing doesn’t work. I don’t recommend timing the markets or making decisions based on fear, because that rarely works out to your advantage long-term. A balanced portfolio can typically ride out a recession and rebound later.
That being said, there are a couple of things you could do now to take advantage of the current economic climate.
First, if your time horizon is greater than five years, consider moving future contributions to stocks. This will make your portfolio more aggressive, but you are able to buy more stock funds than you could have before. Essentially, you’re buying them at a discount.
Second, think about moving 3-5% of your bonds to stock funds. You’ll be able to invest in high-quality stocks for a bargain, which could be a major boost to your portfolio down the road. If you have more than 5 years to recover, then you’ll have enough time for stocks to bounce back.
Again, the thought is that you’ll be able to buy more stocks at a discount for when the markets do bounce back.
Overall, the best course of action right now is to not panic, and remember that the market will eventually recover.
If you’re struggling with managing your portfolio or concerned about the economic impact to your investments, I can help. Contact me here to set up a call.