Eleven years ago, on March 9, 2009, the U.S. stock market reached its low point of the Global Financial Crisis. That dark day marked the beginning of an extended bull market that took the S&P 500 Index from 676.53 to 3,386.15 on February 19, 2020 – a 401% increase. Over the last three weeks, we’ve witnessed a sudden reversal. After today’s dramatic 7.6% market drop, the S&P 500 now sits at 2,746.56, a 19% decline from the recent high. Stocks have now given back the significant gains they made over the last 12 months and are on the verge of the 20% decline that defines a bear market.
In search of safety, nervous investors have piled into government bonds, driving prices up and yields down to historic lows. The benchmark 10-year U.S. Treasury bond now yields just 0.57%, substantially less than most money market funds. Even the 30-year U.S. Treasury yield has plummeted, briefly trading under 1% this past weekend. U.S. investors have observed negative bond yields in Japan and Europe with curiosity for years, but we now find ourselves not far from that strange territory.
The precipitous stock market drop on March 9, 2020 was partly attributable to the ongoing spread of COVID-19 (coronavirus) and its deepening economic impact, but also due to an unprecedented cratering of oil prices. Energy-dependent economies worldwide now find themselves under enormous pressure, adding to the uncertainty in financial markets.
The heightened volatility in financial markets and ominous headlines are concerning to all of us. Markets have often rebounded quickly from short-term scares in the past, but is this time different? The short answer is that nobody knows for sure, but here are some of our current observations:
As jarring as recent market turbulence has been, patient long-term investors understand that periods of short-term volatility are inevitable and don’t overreact to them. The future certainly appears less bright than it was a couple weeks ago, and stock prices have quickly adjusted to reflect that “new” version of the future. The market will continue to adapt to fresh news in the coming days, weeks, and months. (This concept is known as market efficiency.) Whether the market has got it “right,” or perhaps has undershot (or overshot), is something we will only know after-the-fact. We can’t tell you when things will turn or by how much, but our expectation is that bearing risk today will be compensated with positive expected returns in the future. We have no reason to believe otherwise.
Please do not hesitate to contact your wealth advisor if you’d like to discuss your portfolio or overall financial situation.