The Prospect of Hope is in the Air

Although, the coronavirus and the resulting economic dislocations are sadly still with us, there are glimmers of hope. The scientific community tells us:

  • masks are proving to be effective tools for preventing infection
  • the US mortality rate per infection is roughly half of what it was in March and April
  • we are rapidly closing in on one or more vaccines, with Pfizer now reporting a greater than 90% success rate on their vaccine
  • there is great promise in a few therapeutic solutions

Even with a hopeful outlook, frustration, lockdown fever, and anxiety may abound. Yet, before emotions engulf us in unknowns, take a moment and review what we as investors have learned—or relearned—from the great market panic that began in February, bottomed in March and ended when the S&P 500 Index regained its pre-crisis highs in mid-August. The S&P 500 dropped 34% in 33 days. We have never seen such a rapid decline. Yet, that is about an average decline for a bear market. The S&P Index has declined on average by about a third every five years since the end of WWII. But in those 75 years, the S&P Index has gone up from about 15 to 3550 at the close as I write today on November 9. Almost as suddenly as the market crashed, it completely recovered on August 18, surpassing its previous all-time high set on February 19. The news concerning the virus and the economy continued to be dreadful, yet the market came all the way back.

I see two great lessons here:

  • The speed and trajectory of a major market recovery frequently mirrors the speed and depth of the preceding decline and
  • The equity market most often resumes its advance, and may even reach new high ground, considerably before the economic picture clears

Historically, the declines have not lasted, and the long-term progress has always reasserted itself. Accordingly, the long-term, goal-focused investor is best advised to ride it out. This is the successful investment policy we have been following all along, and our experience this year has validated this approach even further.  We urge you do not succumb to fears (and fads) which often lead to hasty, emotional, and costly decisions

A word on the election. Simply stated: it is unwise to exit the quality investments you have been accumulating for your lifetime financial goals. Aside from the self-inflicted wound of incurring capital gains taxes, your chances of getting out and then back in advantageously are historically very poor and no professional can reliably help you attempt such a feat. I continue to urge you this election year, and every election year, to stay the course.

Mark F. Swingle, CFP ® and the Westfield Financial Planning team