Capital Markets

Impact of the Coronavirus on Markets: The Long-Term View

Impact of the Coronavirus on Markets: The Long-Term View
clock
2 min 4 sec

Markets continue to be roiled by the worsening news of the coronavirus outbreak around the world. The steep decline of the past week occurred more than a month after news of the virus first surfaced, as investors initially priced-in virus containment to China. But new reports of the virus spreading to 48 countries dimmed hopes for a muted market response. To put the decline into historical perspective, Callan compiled data from recent drawdowns.

Equity Markets

Long-term perspective is hard in volatile markets, but the S&P 500 Index is still up over the last year and by double digits over the last three years. The velocity of the current decline, however, is what worries investors most. The S&P 500 fell 12% in the five trading days this week, and had previously dropped 10% to hit correction territory in six days, the fastest plunge ever.

6 days: Fastest correction in the S&P500 on record

Equities have only declined this quickly a handful of times the past 25 years: three times during the Dot-Com Bubble (2000, 2001, 2002), during the Global Financial Crisis (2008, 2009), euro zone debt crisis (2011), and the yuan devaluation (2015).

What does this mean for equity markets going forward? Over the past 20 years, there have been 10 corrections in the S&P 500, including the current one, according to Yardeni Research. The previous correction ended in December 2018. Of those corrections, only two have turned into bear markets (defined as a decline of 20% or more from the peak).

table

The decline in the markets was met with a large spike in volatility, as measured by the VIX. The current spike represents the largest since the GFC.

Yield Curve

The increased uncertainty and flight for quality have driven down yields in the U.S., as investors rotate into bonds for safety. The 10-year Treasury yield touched 1.29%, while the 30-year yield is 1.79%.

fixed-income

What to do?

As Jack Bogle once commented in other periods of heightened volatility in the markets: “The expression is ‘don’t just stand there, do something’ and the best rule I think is ‘don’t do something, just stand there.’” While the news in the short term may get worse before it gets better, long-term perspective and patience are necessary to ride out short-term volatility in the markets.

As with other market-shaking events, this too shall pass. Over the (very) long-term, history shows us that since 1950, the S&P advances on approximately 54% of trading days, according to Crestmont Research. During that time, however, the S&P 500 has advanced 1,100 times its 1950 levels.

Posted by

Share
Share on facebook
Share on twitter
Share on linkedin
Related Posts
Public Markets

Gains for Stocks Mask Wide Disparities; Little to No Change for Bonds

Kristin Bradbury
Callan expert analyzes the global stock and bond markets in 2Q24.
Private Markets

Private Credit Gained in 4Q23 but Lagged High Yield Benchmark

Constantine Braswell
Callan expert analyzes private credit activity in 1Q24.
Public Markets

Stocks Continue Rally; Bond Returns Fall Amid Rate Cut Uncertainty

Kristin Bradbury
Callan expert analyzes the performance of global markets in 1Q24 and the outlook for the year.
Private Markets

Private Credit Performance Tops Leveraged Loan Index Over Long Time Periods

Catherine Beard
An update on private credit performance in 4Q23
Public Markets

Stocks Near a Record High, and Bonds Reverse Course

Kristin Bradbury
Kristin Bradbury analyzes global stock and bond markets in 4Q23.
Private Markets

Private Credit Returns Exceed Those of Leveraged Loans

Catherine Beard
Catherine Beard and Roxanne Quinn analyze 3Q23 private credit activity.
Public Markets

Tough Quarter for Stocks, with Bonds Facing Third Straight Annual Fall

Kristin Bradbury
Kristin Bradbury assesses the global markets in 3Q23.
ESG

S&P Global Moves Away from Numeric ESG Credit Indicators

Kristin Bradbury
Kristin Bradbury explains why S&P Global dropped its numeric credit indicators and what it means.
Private Markets

Private Credit IRRs Stay Steady and Range from 8%-10%

Catherine Beard
Catherine Beard analyzes private credit activity in 2Q23.
Public Markets

Tech Stocks Lead U.S. Indices Higher; Rate Increases Send Bonds Lower

Kristin Bradbury
Kristin Bradbury assesses the global stock and bond markets in 2Q23.

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.