Coronavirus Update: Let’s Put This Into Perspective [CHART]
Wow, what a start to the week!
U.S. stock markets staged a back-to-back pair of losing days that caught investors off guard and have started to trigger panic for some.
The truth is, we haven’t seen two consecutive negative days of this magnitude since the financial crisis in 2008.
I don’t know about you, but that statistic brings back some bad memories that I’d rather leave behind!
So is this “the big one”? Is it time to bail out of your investments and head for the hills?
Today, I’ve got a chart for you that I hope will help you put this market action into perspective.
A Pullback, But Not a Catastrophe
It’s disturbing to see the market drop multiple percentage points, multiple days at a time.
But when you step back and look at the big picture, the last couple of days in the market may not have caused as much damage as you would think.
Just take a look at the overall chart of the S&P 500 below, which covers the time period from the beginning of our current bull market until now. (I pulled the chart yesterday afternoon when the market was near its low for the day).
As you can see, the February pullback is meaningful. But it’s not all that abnormal compared to other pullbacks we have had along the way.
In fact, we’ve had pullbacks that looked just as bad (if not worse) in 2011, two of them in 2015, and two more in 2018.
Each time, the market found its footing and patient investors were rewarded for sticking with their positions.
Will we see another rebound this time around?
Well, I don’t have a crystal ball. And it’s foolish to try to predict the short-term action of the market — which is based on the fear and greed decisions of millions of humans around the world.
But I can tell you that there are a lot of reasons to remain optimistic.
When it comes to the coronavirus, the outbreak is disturbing for sure. But scientists are working around the clock to come up with a vaccination. And one thing we know about similar viruses is that transmission is more difficult when the weather gets warmer. So there’s likely a slowdown for the spread of the virus in sight — even if it’s a couple months away.
Meanwhile, we’re thankfully at a place where the global economy could actually afford to have a challenge like this emerge.
As we know, the U.S. economy has been growing steadily, and the European economy has been showing encouraging signs of recovery. Thank goodness we went into this challenge from a place of relative strength, instead of during a more difficult financial time.
As I mentioned Monday, this virus will ultimately be viewed as a temporary challenge for our economy. It’s becoming more of a concentrated challenge than we originally expected. But coronavirus will be a temporary issue nonetheless.
So How Do You Protect Your Wealth?
While the chart above shows that the market’s current pullback certainly isn’t a catastrophe, there’s still plenty of wisdom in protecting your wealth from what could continue to be a challenging time in the market.
The important thing to realize is that not all stocks will pull back in the same way.
Many of the stocks that were wildly popular heading into this period, are now the ones that are getting hit the hardest.
This makes sense. Because emotional investors were the ones buying these expensive stocks at any price. And those same emotional investors are now the ones selling at any price.
You don’t want to be like these lemmings!
Instead, focus on the stocks of companies with stable businesses. These are the names that you see featured here at The Daily Edge week in and week out.
I’m talking about great dividend stocks like Coca Cola (KO) or even Microsoft (MSFT) — both of these names are still up meaningfully on the year.
Or maybe consider homebuilder stocks like PulteGroup (PHM) or Lennar Corp. (LEN). People will still buy houses even with coronavirus spreading. And if the Fed reacts by lowering interest rates, it will make mortgages even cheaper.
I also like gold stocks like Wheaton Precious Metals (WPM) and Newmont Mining (NEM). We’ve talked about how gold is a “safe haven” for investors, driving gold prices higher during times of uncertainty. And with higher gold prices, these mining companies can generate higher profits when they sell the gold pulled from their mines.
The key is to make well informed and thought out decisions with your capital.
Don’t just sell your stocks indiscriminately to get out of the market.
Remember when the market pulls back, you have a chance to buy stocks at a discount. This discount can ultimately be a great opportunity for you to grow your wealth more quickly than you would have otherwise!
So let’s keep our heads, keep a reasonable perspective, and use this pullback to our advantage.
Here’s to growing and protecting your wealth!