Will The Coronavirus Crash The U.S. Stock Market?

Unless you live under a fairly large rock then you have heard how the US stock market has taken a tumble and many credit this to the Coronavirus that has been spreading out of Asia. If this is news to you don’t click off this article and check your 401k. Instead, give this article a read so I can ease your mind.

Then go check your retirement if you want.

Viruses are nothing to joke about. I hate getting sick and from everything I’ve read this virus is spreading pretty uncontrollably.

Before you run to your nearest Costco to start preppi ng to barricade yourself in your home let’s think about this logically. Flu season happens every year. It impacts hundreds of thousands of people and even kills some. The Coronavirus, while maybe more deadly, doesn’t have nearly the reach that the flu does.

So why are people freaking out? What is the stock market correcting?

Well, there are many factors at play here but most of them circle back to social media and mainstream media. Everyone is competing for clicks (myself included) and if they can think of a headline that drives 10% more clicks that is money in their pocket. Even if what they are portraying isn’t always accurate. Take this ridiculous Recode article for example.

The Cornonavirus’s Impact

COVID-19, or Coronavirus for us simpletons is a real issue that is making tens of thousands of people sick and even killing some of them. It’s something I don’t think we should take lightly but also something we don’t know many facts about.

I say facts because it’s been no secret that some of the numbers being reported of people being infected or even resulting in death have seemed somewhat off. Again, if we take a step back these facts aren’t coming from the most open and honest countries. Looking at you China.

Here are some other diseases that I want to mention:

The Spanish Flu
SARs
Mad Cow Disease
Ebola
Swine Flu
West Nile Virus

Do you remember these viruses? I can vividly remember being scared to eat beef because of the Mad Cow Disease and scared to go outside because of the West Nile Virus. Looking back was there a chance I could catch one of these viruses? Sure.

But I have a higher chance of getting into a car accident.

The same goes for Coronavirus.

If you want a full breakdown of some of the diseases and viruses listed above then check out this article: How Will Coronavirus Affect Your Portfolio?

The US Stock Market By The Numbers

On Monday, I saw a terrible take on Twitter. Like most, I usually scroll on past but this one struck a nerve. It got me more riled up than usual because it was using data to sway people to have negative feelings towards a certain individual. Most of you reading can guess who that individual is and I’m not here to debate that.

What isn’t up for debate is positioning data in a misleading way to push your agenda. If you do that I’m going to rant about it (like I’m doing now) then block you just because.

I’m not going to say who posted this chart and I’m surely not going to credit them for it but here it is, in all its glory:

As you can read this chart shows the largest daily point losses in one day. This is for the Dow Jones Industrial Average, another fund that represents the general market. On Monday, the Dow dropped over 1,000 points putting it in the top 5 point losses in one day. The Dow continued to drop all week but none surpassed Monday’s decline. Obviously, not great but was is it really that bad?

Well no, and that is where the misleading begins. If you look closely at the chart you can see the largest single-day point drops have all happened fairly recently. Most in the last 2 years. Can you guess who people are trying to push an agenda against (hint: it’s an election year).

This article isn’t about giving you a statistics lesson so here is how that chart should have been framed:

The BIG difference? This chart looks at the largest single-day % loss. Let’s put it this way if your net worth was $100,000 and mine was $1,000 and we lost $1,000 in one day who would it affect more?

Obviously, I would have $0 and you would still have $99,000. To tie this back in the Dow Jones is currently trading over $26,000. In 1987 it was trading at $1,738. This is why we need to look at percentages, not total value lost.

Looking At The Big Picture

In this article, we’ve established a couple of things. The first is that we have no clue what the future holds. The Coronavirus may wipe us all out or it may be something that society gets control of. Personally, I’m an optimist so I’m going to bet on the latter.

Secondly, we have no idea what is going on and what is actually a fact. I’m looking at you again China. Worse yet, we have people skewing numbers to scare the general population. Please don’t be that person. In addition, do your own research on a topic and don’t take a picture you see on Twitter as gospel.

What I want to do now is look at the facts. Historical numbers are facts and can’t be debated so let’s start there.

The first chart below is the S&P 500 year to date. For those of you who aren’t stock market/US economy nerds basically what this number (somewhat) reflects the US economy and what we believe the future may hold. Again, we don’t know anything about the future.

As you can see we have had a sharp drop off. Some are calling this a ‘correction’ or a ‘recession’. Frankly, these are just buzzwords to get clicks, don’t fall for it.

When we zoom out we can see the S&P 500 over the last six months.

You can still see that sharp drop off that has happened in 2020 which some are attributing to the Coronavirus but overall it’s a steady incline. You probably noticed this in your 401k if you are properly diversified.

Let’s back it out one more time, this time over the last 10 years.

Wait one second, where did the sharp sell of go that has been happening in 2020? If you look really closely you can somewhat see it but it’s unsubstantial.

The point of this exercise is to give you perspective. Yes, your 401k or other investment accounts may be down a large dollar amount this week but look how they have performed over the last 10 years. We are in the midst of the longest bull run in the history of the stock market.

The Bottom Line

I hope this article has eased your mind about a slight blip that you may have seen in your 401k returns. I think this is a great reminder of what a stellar year 2019 was (the S&P 500 was up over 28%) and how that isn’t going to happen every year. There will be ups and downs but historically the market has returned 7-8% as the chart below shows.

Is the Coronavirus a real issue today? Absolutely.
Did the Coronavirus have some impact on the stock market pullback? Maybe.
Do I think there could be some long-term impacts from the Coronavirus? I do.
Will the Coronavirus crash the U.S. Stock Market? Chances are, no.

All of the answers to the questions above are strictly my opinion and the best part about the stock market is it doesn’t care what my opinion is.

What I would suggest you do is stick the course. Keep funding your investment accounts every single month. Don’t let the noise from the news, a poorly informed tweet, Coronavirus myths, or your friends and family tell you any different.

Why?

Well, you can’t deny the facts and we can’t make up what has happened in the past. On the other side of things, we can’t predict the future so why even try?

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