The Coronavirus Impact: February 27

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“The future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.” – Warren Buffett

At the time of this writing, the S&P 500 is down nearly 10% since reaching a high on February 19. Much of the volatility is being attributed to growing fears of the coronavirus, Covid-19, with the number of global cases now over 80,000 including almost 3,000 deaths. Tuesday, February 25, marked the first day where there were more new cases reported outside of China than inside (427 to 411), and the U.S. is preparing for the potential of a more widespread outbreak domestically. The impact the virus will have on the global economy is not yet known; however, it is likely to be short lived.

While consensus opinion seems to be that the Covid-19 outbreak is far from over, it is important for investors to put the recent market volatility in historical context. The recent pullback has only taken the S&P 500 back to levels seen in early December 2019. For investors who remained invested in the S&P 500, 5th they have as much money today as on December of last year.

Since 1980, the average S&P 500 intra year decline is 13.8% while the average S&P 500 annual return is 12.0%. Despite a more rapid drawdown than anyone would hope for or likes to experience, the market has yet to reach the average intra-year decline of the past 40 years. Historically, long-term investors are rewarded, on average, for tolerating this type of volatility in equity markets.

The opening quote from Warren Buffett ties in wonderfully with one from Peter Lynch that we used to begin our Q2 2017 Investor Letter: “Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.” While the recent market volatility and Covid-19 virus fears are disconcerting for long term investors, we believe an opportunity develops from stock market pullbacks; thus, creating a potential buying opportunity. While the exact future is difficult to predict, we believe our clients’ portfolios are positioned to weather this headwind, while at the same time take
advantage of investment opportunities that develop as a result of this market pullback.

For more information, contact HORAN Capital Advisors at 513.745.0707.