Week in Review: Another Bumpy Week for Stocks

U.S. stocks fell again on Friday, ending another volatile week, as coronavirus fears outweighed central bank and government attempts to support the economy. The S&P 500 index fell 4.3% on Friday, and is now down 31.9% from its February peak.

“The problem is until the market sees some evidence that we’ve got the virus under control and can get back to business, there isn’t going to be a lot of confidence to buy, so the riskier/less liquid the asset, the weaker it will be,” says Kathy Jones, Chief Fixed Income Strategist for the Schwab Center for Financial Research.

“The volatility may be uncomfortable, but it’s natural when there is little confidence in the outlook,” says Jeffrey Kleintop, Schwab’s Chief Global Investment Strategist. “The market has nothing to hold on to in order to steady it. We don’t know how weak the economic data will be or how long a potential recession could last. Companies can’t give any credible guidance on earnings. And while the market may bounce on stimulus announcements, it’s unlikely to bottom until we see the peak in new virus cases, and we don’t know when that will be.”

What investors can do

Stocks are well into bear-market territory (that is, down 20% or more), and that can be scary for many investors. It’s natural to want to do something, but Schwab experts say investors shouldn’t react based on emotions. However, here are some steps to consider:

1. Rebalance your portfolio

“There is no cookie-cutter answer to what investors should be doing,” says Schwab Chief Investment Strategist Liz Ann Sonders. “If you are a disciplined longer-term investor that has a diversified strategic asset allocation plan, you could consider more frequent rebalancing tied to how far asset classes have moved relative to [your] longer-term targets.”

Rebalancing is the act of selling some investments and buying others in order to return your asset mix to its original targets. Because markets continue to be volatile, Liz Ann suggests rebalancing gradually instead of doing it all at once.

“Consider taking a dollar-cost averaging approach both on the ‘add’ and ‘trim’ sides, versus picking a particular day to make adjustments,” Liz Ann says.