Financial markets across the globe have experienced increased volatility over the last several weeks, and particularly in the last several days, in response to concerns of a potential slowdown in economic activity due to the continued spread of COVID-19 (also known as the “coronavirus,” although that refers to a family of viruses) across parts of Asia and more recently Europe.
Over the past month, the spread of the virus has resulted in quarantines of several cities in China and more recently to a significant increase in the number of cases elsewhere, notably South Korea, Italy, Japan and Iran. These developments have led to sharp declines in domestic and certain foreign fixed- income yields and high volatility in global financial markets. In the U.S., the 10-year Treasury note reached a yield of 1.37% in early trading on Monday February 24, its lowest yield in four years. Equity markets have also witnessed increased volatility, although the S&P 500 reached a new high as recently as last Wednesday. It is difficult to quantify the potential economic impacts of COVID-19 as it will largely depend on the length and severity of the outbreak, but it is possible that in the short run certain supply chains connected to Asia may be adversely impacted. While the spread of the virus in China seems to have slowed, unfortunately it has increased in other parts of the world.
To put current market volatility in context, the below table* highlights market responses to virus outbreaks in the past.
*Source: “How the stock market has performed during past viral outbreaks, as coronavirus infects 31,000,” MarketWatch. February 7, 2020.
We are closely monitoring market conditions and is here to assist you with reviewing developments. The current volatility illustrated the importance of maintaining diversified portfolios across multiple asset classes. Timing the market is a very difficult task as market conditions can change abruptly, so it is prudent for clients to maintain a long-term investing approach.