How to Remain Hopeful and Keep Perspective During the COVID-19 Outbreak
The Coronavirus Pandemic is real and it is scary on many different levels. With news of the pandemic spreading and the recommendations on social distancing getting broader, it can be hard to feel certain or safe about anything.
As troubling as it is to watch the unprecedented market decline, we need to maintain our health and the health and safety of our family, friends, and neighbors as the number one priority. COVID-19 which emerged late in 2019 in China has spread rapidly worldwide since then and is a global pandemic. The measures taken by leaders around the globe have been strong leaving most children without a classroom to go to, many parents working from home or some without a job altogether and investors panicking about what is to come.
This disruption to daily life and to our psyches is substantial. The coming weeks could be difficult, but these measures are practical and prudent.
Our Current Reality is not Permanent
The markets have made a clear statement as to what they think of this short-term reality. Short-term growth, which drives optimism for many investors, will probably be stunted. Even though most economists have resigned themselves to the fact that a mild recession is probably inevitable, many of those same experts believe it could be short-lived.
China, which has seen the worst of the outbreak and is returning to normal daily life and is expecting a smaller GDP growth of around 5% for 2020 versus 6.1% for 2019 though that number may shrink depending on the impact the virus has on its global trading partners. The reality is that much of the world could potentially experience a short-term recession, but without the drastic measures being taken today, the impact both in terms of public health and economically could be far worse.
In a time when uncertainty is simply a part of daily life, let’s look at some points where we can perhaps gain some valuable perspective:
Markets see a sharp decline from time to time: While never an easy pill to swallow, bear markets happen. In fact, bear markets typically happen every 5 years and this nearly ten-year growth spurt is more unprecedented than this most recent shockwave.
Economic and Market Recovery is highly likely. The recession that followed the global financial crisis of 2008 and 2009 was very long. There is still anxiety among those who were so deeply affected by it and many worry that it could happen again. This current challenge doesn’t have the same characteristics, however. Our foundation is much stronger than it was then. As Joe Davis, Global Chief Economist for Vanguard put it, “The global financial crisis was a house of cards falling down, a crisis of excessive leverage, with the financial system itself in jeopardy. The system is sounder now. And although we do expect that global economies will contract in the second quarter; we believe that most will be in a position to rebound strongly later this year and early next year when the virus-related shock subsides, and pent-up demand emerges.”
The response by leaders worldwide will be critical. The swift and decisive action taken by world leaders in recent weeks to mitigate the spread of the virus is the same type of approach that must be taken toward the economic impact. If economic policy makers take advantage of the interest rates at almost-zero and use that stimulus to contain the virus and provide cashflow for households and small to medium-sized businesses to stay afloat, then the fallout will more likely remain a short-term issue and not a long-term problem.
Making our way through this is something that will require us all to come together as a community both locally and globally… We must take comfort in what we know and keep perspective on all that we do not. What we know is that there will be a temporary downturn but, we believe that securities markets and the global economies are and have always been resilient and there is no reason to think that this time should be any different.
Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.
Vanguard analysis based on the MSCI World Index from January 1, 1980, through December 31, 1987, and the MSCI AC World Index, thereafter, indexed to 100 as of December 31, 1979. Both indexes are denominated in U.S. dollars.