An escalating dispute between Saudi Arabia and Russia added oil to the fire of uncertainty around the Covid-19 outbreak, figuratively and literally, causing the markets to overact in an already volatile period.
Yesterday’s rout saw the Dow losing 7.8% in trading and oil prices plummeting 20%. The yield on the U.S. 10-year Treasury also fell to a new record low of 0.38%.
The fear of the unknown and attempts to price in the economic outcome has taken markets down about 20% from their highs in less than a month. In times like these, cooler heads must prevail and periods of volatility, intense as they are, come standard with the long-term investing process.
There is no indication as yet that the latest coronavirus is here to stay. COVID-19 will see an eventual end, as have other coronaviruses in the past. The level of disruption it will cause over the coming months is still to be determined but as companies reassess their level of exposure to both the coronavirus and supply chain issues in China and implement business continuity plans the markets will adjust and manage expectations accordingly.
If history has taught us anything when it comes to the markets, panic has always been the worst reason to sell.
The bright spot in this volatility could be a return to normalcy for valuations. A price-to-earnings multiple approaching 19.5 simply wasn’t realistic even before the coronavirus fallout, but we felt any type of pullback would have been within acceptable limits. Now, coronavirus coupled with oil could modify our view based on how fast both situations can be resolved. As the markets come down valuations look more attractive making it a better entry point for some investors. While it’s difficult to predict the impact on earnings in the short term, an environment with stagnant or lower earnings for this year, low treasury yields and lower oil prices could be somewhat of a boost to the economy if it results in more disposable income in the pockets of consumers and investors.
A few firms have lowered their market forecast with expectations that the S&P 500 will end the year between 3,100 and 3,300, down from previous estimates of 3,650. If those targets remain true, there could be nice market upside.
As the markets struggle, GGA will continue to serve as an adviser and guide for our clients during these turbulent times. Our conservative approach is backed by solid investments of the highest quality as we firmly believe that good investments will come back. Bad investments won’t. Concerned about your market moves? Our representatives can answer questions at any time so give us a call today.
