Seeing Beyond Short-Term Turmoil: Ideas for Stock Investors

Financial markets, and the world, are in unprecedented times. Tony DeSpirito offers some perspective along with ideas for preparing for the eventual return to “normal".

Global spread of coronavirus brought a swift and sudden reversal of the positive momentum that was driving equity markets at the start of 2020. The volatility is likely to persist as investors weigh the impact on corporate earnings and global supply chains. While we expect earnings will be hard hit this year, we see coronavirus as a transitory event (perhaps three to six months) that does not permanently impair the world economy and company earnings power. The recent fall in U.S. stocks has been particularly pronounced, but history suggests investor patience has been rewarded as markets regain stability.

This is not 2008

Volatility never feels good, but the foundation underlying it is important. Daily market moves in response to the COVID-19 outbreak have matched the scale of those seen during the global financial crisis. But this is not 2008. The coronavirus shock is not one caused by a crisis in the core of the financial system and spreading to the rest of the economy. The economy is on much stronger footing and the financial system is much more robust. In fact, policy measures and safeguards put in place since 2008 have only strengthened the financial system.

What to do? The bad news: Few investors are good at trading around extreme market volatility. The good news Decades of stock market history tell us “this too shall pass.” This, and our own experience, suggests that the most prudent tack for a long-term investor is to stay the course ― and to prepare for the opportunities that may arise as markets emerge from the turmoil.