Monthly Market Update:
Recap of February 2020
Late January we saw a light pullback in the market due to virus concerns, but the markets rebounded in February where we saw more index all time highs. Then, as the media began reporting the virus was beginning to enter other countries, fear struck the markets and the selloff began.
The S&P 500 finished February down 8.23%, the Dow down 9.75% and the Nasdaq down 6.27%. The MSCI EAFE was down 9.04% and MSCI emerging markets down 5.27% while the Barclays US Aggregate Bond was up 1.8%.
Though we have seen quite a bit of volatility for the month, we have to remember that we finished last year with the S&P 500 up over 30%. These numbers show how important it is to keep a long-term mindset and focus more on long term averages and not month to month or year to year averages.
The market as a whole slipped nearly 12%, but this was not much different than the Sars Virus in 2003 and the Zika virus of 2015 where the markets fell just over 12%. In both the Sars and Zika sell offs, the markets eventually rebounded and hit new Sall-time highs.
If you did not see, the news began reporting the market sell off was a correction. This is where an index, such as the Dow, Nasdaq or S&P 500 drops more than 10%, but less than 20%. Once the market hits 20% or more, that is considered a bear market. To give you an idea, market corrections are a bit more common than you would think, with 23 occurring since 1976. This statistic tells us that a market correction occurs about once every two years.
Currently, the entire sell off has been based on fear. Will the economy be impacted drastically by the virus is still a looming question? If the answer is yes to this question, the market sell off could be justified, but at this time, there is not a justification for the sell off.
During the sell off, interest rates moved lower, which is actually good for long term bond holdings which are held in the majority of client accounts. When bonds go down, the value of outstanding bonds go up because there is a higher demand for these bonds. How this works is if you were to have a bond that pays 2%, and the new bonds are purchased at 1%, nobody wants the new bonds and they instead want your bond because it pays a higher interest rate.
Due to the rough week we saw in the markets, the Federal Reserve is projected to lower the fed fund rate at their next meeting on March 18,2020.
We will continue to monitor the markets, though I encourage you to stay patient and not panic. The markets will have many more ups and downs through the years, but the best thing to do is stay the course and stick to your financial plan. If you have any questions, please do not hesitate to reach out.