Yes, last week the Dow Jones saw it’s biggest drop since the financial crisis in 2008 (ahhhhh!!!) but what does this actually mean for you?
1: What’s happening?
A few weeks ago, after news of the coronavirus first broke, the world markets stayed relatively stable. But last week we saw the other shoe finally drop. We experienced global market downturns in every major index in the world. One of the biggest and most well known was the Dow Jones Industrial Average. The DJIA dropped over 12% which is the biggest decline we’ve seen since the financial crisis back in 2008.
2: The Bad
Markets run off of fear and greed. Right now fear is front and center because this health pandemic was not predictable and we don’t know when it will be over. The markets price situations in before they actually occur. Supply chains that are connected through manufacturing processed in China have been cut off and could continue to hurt the US economy for 1-2 quarter this year.
3: The Good
Before the cornovirus outbreak, we were not seeing any red flags or problem areas in the US economy that would have sparked a sell-off. Our economy is relatively strong, given low unemployment numbers, healthy real estate markets which include new home sales and prices, healthy money supply and continued economic expansion.
4: Is this normal?
In general, markets are volatile. This has been muted since 2009 because we’ve been in an extended period of economic expansion and growth phase for 10-11 years. It’s “normal” for the markets to naturally correct themselves. A typical economic cycle from economic expansion to a recession can take about 4-7 years to complete. We haven’t seen this cycle come to it’s trough phase in over a decade.
5: What does this mean for you?
To put this into perspective, during a health pandemic markets typically begin to stabilize when the number of reported cases of a virus start to slow down. So just be aware, when you start to hear this in new headlines then the markets will begin to stop any further bleeding.
6: What should you do?
Timing the market right consistently is close to impossible. You may be able to sell without losing more money but knowing when to buy back in so you can experience further gains is extremely challenging. The most important factor you need to consider is if you’re money is invested to meet your financial goals and time frames. You want to make sure you’re taking the appropriate amount of market risk in conjunction with when you will use the money and your tolerance to ups and down in the markets. If you’ve invested money into stocks that you’ll need within two years to buy a house it’s time to reconsider! It’s never harmful to review if you’re investments are in line with your financial goals but be cautious to make any knee-jerk reactions. Talk to your financial adviser to help confirm you goals are in line with your time horizon and tolerance to market fluctuations.