Currently, most of the market averages (the Dow Jones, S&P 500 and NASDAQ) are down for the week by about 13%.Obviously, the growing pandemic threat of the Coronavirus has prompted the severe selling to reach a technical market correction of more than 10%. The panic stems from the virus appearing in 48 countries apart from China. So far, according to the World Health Organization (WHO), the virus is not spreading freely in communities but is linked to identifiable sources. The market has been through other historic corrections, but each of these past corrections was based on economic issues such as the collapse of the housing market in 2008 and the ensuing financial crisis. Today's sudden and severe concern by the market is not based on economics, but speculation about economics as a result of a worldwide pandemic.
I'm not an expert on pandemics, but the cases in China seem to be stabilizing and the Chinese stock market has actually made some gains after its sharp sell-off. This could be a key indicator for the future of the rest of the world's markets, most importantly the U.S. stock market. A characteristic of the stock market historically is that recoveries happen even more suddenly and sharply than sell-offs. This means that it is almost impossible to catch the market bottom after selling during a correction.
Lastly, at least for now, the economic fundamentals of the U.S. remain very strong across almost all sectors. As such, the fear prompted by the virus has yet to have much of an adverse effect. Therefore, the best course of action is not to panic. Staying the course and weathering this market storm is difficult, but it is proven to be the best course historically. Just a week ago, the market was hovering at or near record highs; it might have been a little overpriced, but not by 13%. We are watching market events and dynamics very closely. The two most important things to remember now: first, is that you are a long term investor and this is a short term health crisis. Second, this is why asset allocation and measuring risk are fundamental to both our approach and yours as the unexpected takes place.