If you’ve been living under a rock, I’ll excuse you for not being up to speed with the world’s current affairs.
In the last week it appears that the Coronavirus (COVID-19) is spreading at an alarming rate. Now it shouldn’t be understated, the virus is deadly and the impact may be widespread, but the very nature of our human short comings ensures that we’re primed to overreact. This is especially true to external pressures and events, point in case the great toilet paper run of 2020!
More seriously, governments and central banks are attempting to combat the economic effect of the virus. The Reserve Bank of Australia reduced the cash rate by 0.25% on Tuesday to a record low of 0.50%. In comparison the US Federal reserve (equivalent to our RBA) doubled their rate reduction by half a percent, bringing the US to an official rate of 1.25%. It’s easy to think the world is falling apart.
Economics 101 – reduced interest rates are generally utilised to drive economic growth or reduce the impact of a decline in growth. This is sometimes referred to as a ‘soft landing’ which looks like the more likely scenario to play out over the coming months. It will take time to truly understand the impact of Coronavirus on markets and the wider economy, but I’m confident we’ll feel the pinch, whatever form it takes.
At times like these it’s important to keep perspective as history has an unusual way of manifesting into the present. The current Government and Central Bank reaction to Coronavirus is normal, it should be expected. Don’t panic!!
Drawing on history, the SARS outbreak saw a virus timeline of roughly 8 months, during the first 3 months of the 2003 calendar year markets finished down on a price basis by approximately -7%. They then went on to recover +17%, leaving Calendar Year returns at 10%, close enough to long term market averages. If I didn’t sell anything during the panic, I DID NOT LOSE ANYTHING! Read those words again, slowly….
Whatever the external event a call for calmness and clarity is needed, especially with investing. As the late Jack Bogle says, “Stay the course.”
If you would like to discus the potential effects of global issues on your portfolio, give the team at Steve May a call and start a conversation today.
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Nick Shanley, Steve May, Luke Styles and Shanley Financial Planning T/A Steve May Financial Services are Authorised Representatives / Corporate Authorised Representative of Sensibly Pty Ltd, AFSL 533923. Please refer to our website at www.stevemayfs.com.au to reference our Financial Services Guides.
