Volatility is Back! (And So Am I)

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Written by Ben Rosholt, Wealth Advisor

My last blog post was on April 3, 2018. I have been keeping a list of topics to write on but none kept my interest long enough to gather my thoughts. Well, there is nothing like volatility to break a case of writer’s block.

As you know, since the first of the year the stock markets have reached all-time highs. This is the volatility that most investors like. However, the market has more recently corrected from those highs, dropping by more than 5% – volatility most investors do not like. The cause of this recent negative volatility has been associated with the outbreak of the coronavirus, and the potential impact the virus may have on the global economy. As we look at the recent 5% downturn in the equity market, we are reminded the market dropped by 5% (or more!) three times during 2019 and closed as one of the top performing years in history.

As with all negative volatility, there is the temptation to sell and “run for cover”. The problem is that for the strategy to be effective, you need to know when to buy back in. And let me ask you, “Would you have moved back into the market in early October just as the economic after-burners kicked in?” If we are all being honest, the answer is “No”. But that is precisely why we believe in diversification. Having investments spread across many asset classes allows us to weather the volatility storm.

More on the coronavirus outbreak…

On December 31, 2019, the World Health Organization (WHO) was informed of an outbreak of “pneumonia of unknown cause” detected in Wuhan City, Hubei Province, China – the seventh-largest city in China with 11 million residents. As of January 23, there are over 800 cases of 2019-nCoV confirmed globally, including cases in at least 20 regions in China and nine countries/territories. The first reported infected individuals, some of whom showed symptoms as early as December 8, were discovered to be among stallholders from the Wuhan South China Seafood Market. Subsequently, the wet market was closed on Jan 1. The virus causing the outbreak was quickly determined to be a novel coronavirus. On January 10, gene sequencing further determined it to be the new Wuhan coronavirus, namely 2019-nCoV, a betacoronavirus, related to the Middle Eastern Respiratory Syndrome virus (MERS-CoV) and the Severe Acute Respiratory Syndrome virus (SARSCoV). However, the mortality and transmissibility of 2019-nCoV are still unknown, and likely to vary from those of the prior referenced coronaviruses.[1]

I am not a medical professional or an expert in the study of pandemics, but I am a keen observer of facts. And the lack of complete facts is what makes this outbreak so difficult. Fortunately, the John’s Hopkins school of engineering has created a dashboard to give real-time data to the situation.

The first thing that should stand out is the staggering number of confirmed cases. As I write this, there are 82,557 confirmed cases and 2,810 deaths. The next surprising statistic, both to me and everyone I have show this to, is the number of recoveries. For some reason we are being allowed to believe that contracting the virus is the equivalent of a death sentence. In fact, it is far from it. The 33,252 people in the “recovered” status represent about 40% of all cases. And the deaths, well, the represent 3.4%.

Also of importance is that the number of cases appear to be to leveling off while the number of “recovered” is growing rapidly.

 


 

[1]https://systems.jhu.edu/research/public-health/ncov/

 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

A diversified portfolio does not assure a profit or protect against loss in a declining market.

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