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Market Update Feb 27/20: Stock markets impacted as global economy is infected by Coronavirus fear. What is an investor to do?

Global stocks plunged to four-month lows, government debt yields sunk to unprecedented levels and crude oil extended declines as anxiety over the spread of the coronavirus deepened.  Markets are moving visibly into high-risk aversion territory from euphoria one month ago, says Frederic Dodard, Head of Portfolio Management, EMEA at State Street Global Advisors.*  Realized and implied volatility metrics have skyrocketed since Monday, and it is triggering a significant derisking trade involving the selloff of equities, buying of bonds and cash. History shows it may take a few weeks until markets calm down.

The S&P 500 tumbled 4.4 per cent to close at the lowest levels of the day yesterday. The decline of more than 10 per cent since last Friday has the benchmark on pace for its worse week since the 2008 global financial crisis which helped push the index into what is known as a correction.

Losses continue to mount as investors weigh each gloomy headline on the spread of the virus – beyond China to Italy, Iran, Croatia, Brazil and other countries. U.S. health authorities on Wednesday said they found the first case of the illness that does not have ties to a known outbreak. More than 8,000 individuals are under observation in California.  “Canada has been successful so far in detecting imported cases and preventing person-to-person spread within communities but is preparing for other scenarios”, says Canada's Chief Public Health Officer Theresa Tam.

While not officially a pandemic, the expectation by analysts is that profits will slow, and many companies have issued cautious guidance.  Microsoft Corp. joined an expanding list of companies warning over the impact of the virus on operations.  Historically speaking, market reactions to such epidemics may be fast moving but is often short lived.  The chart below highlights the impact of world epidemics on global market performance and more importantly the post-recovery period.


What is an investor to do?

These shocks to the system can be scary for an investor.  However, panic selling during periods of uncertainty can have a grave impact on your portfolio.  But the fact remains: stocks have gotten cheaper.  And in every bout of volatility, there are opportunities to find value.  If you are a long-term investor, the appropriate course of action is to maintain a well-diversified portfolio and remain steadfast to your plan.  Individual needs vary, and we are all in different stages of our plans.  Your Alterna advisor will take the time to help you navigate the impacts of markets on your portfolio and how they may be affecting your long-term goals. Your advisor will provide valuable insights and advice to ensure your plan aligns with your objectives. 

*Dow Jones Newswires

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