In November of 2002 another virus was sweeping across Asia and it was known as SARS (severe acute respiratory syndrome). During its nine months, it moved into 29 countries and according to the WHO (world health organization), there were 8,098 confirmed cases. Those resulted in 774 deaths for a fatality rate of 9.6%. The swing flu outbreak of 2009 had much lower fatality rates and wasn’t as widely spread.
What markets don’t like is the unknown. What Coronavirus has introduced to the markets is more unknowns. What we saw back in 2003 with the SARS outbreak was that it had the most significant impact on air travel, tourism, and domestic demand in Asia. Hong Kong, for example, experienced some of the most severe economic impacts, with its GDP growth falling by -0.5% y/y in 2Q 2003, and its retail sales declining by -7.7% y/y that quarter. China’s growth slowed to 9.1% y/y, and its retail sales, industrial production, and fixed asset investment suffered. However, these rebounded quickly as the new cases dropped and the Chinese government offered supportive economic measures. During that period, U.S. equities fared better than stocks in EM Asia when concerns over SARS were rising. However, Asian stocks rebounded once concerns about SARS abated. This indicates that prevailing market conditions and fundamentals have a more prominent influence on returns.
While all viruses are different, so are all markets. What was happening in 2003 was quite different from what was occurring in markets recently. The current environment is one of slowing global growth and earnings. The Coronavirus is likely to impact the economy and markets in similar ways, although perhaps to a greater extent. With this as a back drop, what is a retirement investor to do.
If you are like many Americans and you are years from retirement and right in the middle of your accumulation phase, you should keep saving, keep re-balancing (or letting your target date fund or model portfolio do it for you), and keep buying shares that are now less expensive than they were a week ago. In 2018 we saw a significant correction in the fourth quarter that in some asset classes was over 20% yet the bounce back was rather quick and didn’t linger on future quarterly statements. While this is tough to stomach, this is part of a healthy long term market that will see many corrections, recessions, and expansions during your lifetime.
Those words are likely irrelevant for those who are now spending down those accumulated assets to fund retirement. With Americans living longer many have a larger allocation to stocks then they would have in the past. For those investors they need to revisit their risk tolerance and range of expectations to determine if one week has wiped out a lifetime of planning. You should work closely with your advisor at this time to look at your risk and evaluate what your immediate income needs are. For many the short term fluctuations force us to want to sell at a point like this but if we have matched our risk to our allocation, while markets may be down a lot we probably aren’t in as bad of shape as we might assume from reading the headlines. Those RMDs (required minimum distributions) aren’t due tomorrow and you have some time to evaluate all of your options.