How to Remain Hopeful and Keep Perspective During the COVID-19 OutbreakTuesday, 17 March 2020
We are facing something we have never faced before in our lifetimes. That is a fact and, in a time, when the news of the pandemic spreading and the recommendations on social distancing getting broader by the day, it can be hard to feel certain or safe about anything.
As troubling as it is to watch the unprecedented market decline and as hard as it is to tune out the decline of your investments, we need to maintain our health and the health and safety of our family, friends, and neighbors as the number one priority. Covid-19 which emerged late in 2019 in China has spread rapidly and is a global pandemic. The measures taken by leaders around the globe have been unsettling leaving children without a classroom, parents working from home or without a job altogether and investors panicking about what is to come.
This disruption to daily life and to our psyches is substantial and it’s terrible. The coming weeks will not be easy, but these measures are practical and prudent.
Our Current Reality is not Permanent
The markets have made a clear statement as to what they think of this short-term reality. They have recognized that what is necessary to combat a further global public health crisis will mean more uncertainty and the likelihood of further collateral economic damage. Over the short-term, optimism is what the market thrives on. The current conditions point to a loss of that optimism; however, the current reality is not and will not be permanent.
China, which has seen the worst of the outbreak and is slowly returning to normal daily life, is expecting smaller GDP growth of around 5% for 2020 versus 6.1% for 2019 though that number may shrink depending on the impact the virus has on its global trading partners. The reality is that much of the world will experience a short-term recession, but without the measures being taken the impact both in terms of public health and economically could be far worse.
In a time when uncertainty is simply a part of daily life, let’s look at some points where we can perhaps gain some valuable perspective:
- Markets see sharp decline from time to time: While never an easy pill to swallow, market downturns do happen. In fact, bear markets typically happen every 5 years and this nearly ten-year growth spurt is more unprecedented than this most recent shock.
- Economic and Market Recovery is highly likely. The recession that followed the global financial crisis of 2008 and 2009 was very long. There is still anxiety among those who were so deeply affected by it that it could happen again. This current challenge doesn’t have the same characteristics. Our foundation is much stronger than it was then. As a leading Global Chief Economist put it, “The global financial crisis of 2008 was a house of cards falling down, a crisis of excessive leverage, with the financial system itself in jeopardy. The system is sounder now. And although we do expect that global economies will contract in the second quarter; we believe that most will be in a position to rebound strongly later this year and early next year when the virus-related shock subsides, and pent-up demand emerges.”
- The response by leaders worldwide will be critical. The swift and decisive action taken by world leaders in recent weeks to mitigate the spread of the virus is the same type of approach that must be taken toward the economic impact. If economic policymakers take advantage of the interest rates at almost-zero and use that stimulus to contain the virus and provide cash flow for households and small to medium-sized businesses to stay afloat, then the fallout will more likely remain a short-term issue and not a long-term problem.
Making our way through this is something that will require confidence in the systems that have taken us to this point. In the meantime, we must take comfort in what we know and keep perspective on all that we do not.
What we believe is that there will be a temporary downturn. We believe that the U.S. is resilient and there is no reason to think that this time should be any different.
We understand the enormity of this problem. It affects almost every aspect of our lives. Yet, we also understand that this crisis is not permanent. We have taken the stance that collectively the decisions that have been made on our behalf to overcome this hurdle will provide a more positive and structurally sound platform to deal with a similar problem in the future. That effort alone will provide additional value to the market, to investors, and to the improvement of market valuations.
Stay safe and keep your chin up.
- Vanguard analysis based on the MSCI World Index from January 1, 1980, through December 31, 1987, and the MSCI AC World Index, thereafter, indexed to 100 as of December 31, 1979. Both indexes are denominated in U.S. dollars.