What is happening in the markets?

The number of coronavirus cases outside of China recently spiked, triggering panic among investors and a drop in equity markets over the past several trading days. After setting all-time highs just last week, the S&P 500 Index entered correction territory on February 27, 2020 (defined as a 10% drop from the peak). Assets considered to be safe havens have surged as investors flee to safety. Gold surpassed US$1,650 per ounce, the highest level since 2012, and U.S. 10-year yields fell to an all-time low of 1.25%.

How will the virus impact the global economy and investment markets?

While we don’t have a crystal ball to predict what the impact of this epidemic will be, it is fair to expect weaker growth in the first and second quarter of 2020. In China, for example, quarantine measures have led to lower activity that will likely trickle through to economic growth. Disruption of global supply chains and travel have led to a decrease in consensus forecasts for economic and earnings growth. In China, the number of new cases has been decelerating, which is a positive sign, but major outbreaks in other countries including Iran and Italy highlight the difficulty in containing the virus, and it is too early to declare victory. Markets could remain choppy until we get more clarity on the rate of spread outside of China and/or potential for a cure.

Should I make any changes in my investment portfolio?

Investors should consult with their financial advisor if their investment plan has changed, however we typically do not recommend making any changes unless your financial objectives have materially changed. Corrections are a natural part of the investment cycle and over the long term, investors who stay invested and use volatility as an opportunity to buy are rewarded. The chart below highlights the risk of missing out on the best equity market days, which often come after large declines.

Source: Morningstar, CI Investments. S&P 500 TR in USD from January 1, 1990 – December 31, 2019 using daily returns.

How have markets reacted to virus outbreaks in the past?

The chart and table below highlight how the S&P 500 has performed during similar virus outbreaks in the past. While the market impact can be negative, the duration of the drawdown has been inconsistent, and the long-term impact has been limited. In all past scenarios, markets were higher 12 months after the virus was identified.

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.


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Published February 28, 2020