Following our post last week, we’d like to encourage our clients and friends to continue to have faith that the almost hysterical reaction to the coronavirus and the markets will soon return to some degree of normalcy.
The Disease Itself
First of all, from our perspective, the coronavirus clearly has the attention of our medical and governmental authorities and they seem to be taking it very seriously. There’s likely not much more that can be done right now, other than see how things develop. There have certainly been economic impacts up to this point, and there may be more, depending on further developments, but no one really knows what will happen next. We are confident, however, that the world economy will recover and continue to grow, despite this latest speed-bump. So, continue to follow the protocol of washing your hands, keeping them away from your face, and staying away from others in the event that you become ill.
The markets, on the other hand, have taken a cue from this boost of anxiety and have begun to exhibit extraordinary volatility in the past couple of weeks. We believe that the magnitude of the wrenching ups and downs has been triggered by program trading and quantitative trading strategies. In other words, large traders are making sizable bets in markets with low liquidity, ultimately causing enormous price swings. We’ve seen these strategies implemented before in the not-so-distant past and we’re afraid we may need to become accustomed to them. We think that in the current case, like in past cases, the market will adjust to the price changes and begin to trade in a more orderly fashion over time. The current correction at least serves to wring out some of the exuberance that the market exhibited last year, bringing prices back down to historical norms. This sort of recent volatility is one of the prices that long-term investors pay to achieve long-term returns.
If you’re interested in reading more about this current situation, one of our favorite market commentators, Howard Marks has recently released one of his periodic memos titled, Nobody Knows II.
Horizon Wealth Advisors is a Houston based fee-only wealth management firm. As a fiduciary advisor, we specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.