Stock market falls have continued this week with the FTSE100 having dropped 7% early doors. This follows what has been a tough month for investors with sharp falls being seen globally. COVID-19 has spooked investors as they worry about the impact of the illness on society and the economy. The extent of the impact this virus has on the economy is unknown. There are expectations for earnings to be downgraded and this could have a further pull on the performance of markets. We have also seen traditional safe havens like gold come under pressure.
Although this doesn’t paint a pretty picture, it is also worth remembering some fundamentals:
- Governments and central banks have a vested interest in trying to support the economy – it’s their job. We have already seen some aggressive moves from the Fed and the Bank of England to help stimulate the economy through interest rate cuts and easing on credit.
- Individuals are still trying to go about their normal business. If you run a company or work for one, you will still want to work, if possible, so to maintain your income to pay your bills. This is the very basic elements of an economy and means that it would take a lot for the whole economy to grind to a halt.
Investments go up and down. Since 1950, the S&P500 has seen average drops in value of 34% which lasted on average for 426 days. In contrast, the average bull markets has lasted 1,736 days with an average gain of 243% (Source: AJ Bell; Are stocks heading for a bear market?, 05/03/2020)
At some point markets will recover. There will be winners and losers in the world of business. The companies that help the market recover may well be different to those that have lost in value recently. Economies change and it’s the job of the fund managers we use in your investments to notice these trends and pick up on the winners.
If you are taking an income from your investments, now is a good time to check whether the level you are taking is efficient. Drawing additional income or more than you need right now won’t help your portfolio in the longer term so keep in mind the need to be streamlined.
Your adviser will be available for you to voice any concerns and settle your nerves. Please do not hesitate to get in touch.