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What Moved the Markets in February?

Stocks Sell Off Sharply on Coronavirus Concerns

After hitting record highs, stocks sold off sharply in late February when it became increasingly apparent the coronavirus would spread throughout the world. One implication is that government and personal preventative measures will negatively impact supply chains and diminish global economic growth. The full extent of economic damage is impossible to predict but some form of slowdown over at least the next couple of quarters should be expected.

What’s the Outlook?

There are some causes for optimism amidst all the scary headlines. Growth in new virus cases continues to decline in China. While China’s response to the outbreak will likely prove heavy-handed relative to other nations, the decline suggests the outbreak could follow similar historical patterns of peaking after only a few months. Another potential positive is the makeup of the U.S. economy, which is now over 80% service based. The U.S. is not immune from a slowdown, but the impact could be less severe relative to manufacturing focused economies like China’s. Lastly, the crisis has already led to more accommodative monetary and fiscal policy in the U.S. and abroad.

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Our Take

In times of euphoria or panic, stocks tend to overshoot in both directions, which is why a stable approach with periodic rebalancing helps. There is no way to know where or when this sell-off will find a bottom. Markets rebounded modestly in early March, but it’s too soon to tell if these gains will persist or if there is more downside to come. It may seem obvious that stocks will decline in the event gatherings, school, or travel are restricted in the U.S. However, thinking globally, these are already reality. Actions of this type in the U.S. could occur even at the same time as we begin to gain visibility toward an environment of reduced virus fears later in the year.

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The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk, CFP®
Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
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