The markets have continued to show substantial volatility, mostly due to the increased international spread of the Covid-19 virus.
This has led to a severe downturn in all market sectors, both here in Canada and internationally. While an increasingly stressful time with respect to your investments, there are some things that are important to consider. As outlined in the market update on March 10th, what we are seeing goes beyond a traditional market correction, and these types of market reactions typically are followed by a market rebound to a more appropriate level. Looking at the market’s response to previous viral outbreaks, we can see this trend.
The following is a chart outlining the length of several previous outbreaks, as well as the returns seen from the S&P 500 during the outbreak. However, it also shows how the market rebounded over the 12-month period immediately following the end of the outbreak:
| Virus | Start Date | End Date | Trading Days | S&P 500 Returns | 12-month Return |
|---|---|---|---|---|---|
| SARS | Jan-03 | Mar-03 | 38 | -12.8% | 32.2% |
| Avian Flu | Jan-04 | Aug-04 | 141 | -6.9% | 4.4% |
| MERS | Sep-12 | Nov-12 | 43 | -1.3% | 16.7% |
| Ebola | Dec-13 | Feb-14 | 23 | -5.8% | 16.7% |
| Zika | Nov-16 | Feb-17 | 66 | -12.9% | 5.7% |
Source: Bloomberg Finance L.P., CitiResearch, FactSet. As at February 27, 2020. The starting date for the 12-month return is the month each virus was identified.
While not all recoveries saw the S&P 500 return to pre-outbreak levels, it is important to understand the impact of participating in the positive returns that occur during a recovery. We can see this is the following graph, which shows the returns within the S&P 500 over the last 30 years, as well as the impact seen when missing out on parts of the market recovery.
Source: Morningstar, CI Investments. S&P 500 TR in USD from January 1, 1990 – December 31, 2019 using daily returns.
Another way to look at this is at the lost value seen for people who removed their assets from the market for a period of time, due to a downturn, only to re-enter the market after the end of this volatile period:
| Market Days Missed | % Less in Value Comared to Leavin the Assets in the Market |
|---|---|
| Missed best day | 10.38% |
| Missed best 10 days | 50.09% |
| Missed best 15 days | 61.02% |
| Missed best 25 days | 75.03% |
| Missed best 50 days | 90.42% |
| Missed best 100 days | 98.52% |
This means that missing out on the parts of a market recovery can have lasting effects on your assets. That being said, our recommendation remains to keep your investments in the market. However, we still believe that reviews and small changes based on new information are prudent, particularly in these uncertain times. If this is of interest to you, please reach out by phone or email to set this up.
Lastly, we appreciate that these are stressful and uncertain times, and as such, we will be sending out weekly updates, similar to this one, for as long as the market upheaval continues.
