403(b) Curriculum Library

Chart of the Month: How Did the Stock Market React to Past Pandemics?

Source: Morningstar, WHO, CDC (Total return index level is index to 100 as of 12-31-2000)

Market Observations

Market volatility has spiked in recent weeks, as markets digest the economic implications of the COVID-19 pandemic. Negative investor sentiment led to an unprecedented decline in bond yields across the globe and sent equity markets into bear market territory. Global markets have lived though many examples of medical emergencies in the past two decades, including SARS, Avian Flu, Swine Flu, Ebola, among others. The global economy adjusted and recovered from these outbreaks without significant impact on its long-term growth. However, it is important to note that not every outbreak is the same in terms of underlying economic and market conditions. Amid the significant disruptions in businesses activities and reductions in consumer spending, the likelihood of a U.S. recession has increased. Incoming economic data and corporate earnings should feel significant pressure over the short term, but the impact of the virus on the economy and markets should also be softened by monetary and fiscal policy. Moreover, at some point, regardless of the extent of the short-term economic impact, the effects of the coronavirus will fade, and life will return to normal.

The current turmoil has served as a reminder that market volatility and downturns are a part of the normal investment environment and not a rare occurrence, and that a measured, long-term approach to investing is paramount for retirement plan investors. Investors who look past the current market volatility, by staying the course and remaining diversified, will likely benefit over the long-run. Global markets have a history of bouncing back from adversity and missing the best days in equity markets could significantly damage long-term returns.

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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