Market Update in Wake of COVID-19

March 14, 2020

On March 11, 2020, the Dow Jones Industrial Average posted -6%1 as the World Health Organization (WHO) declared the novel coronavirus a pandemic. This brought the Dow and many related indices to -20% from record highs, the definition of a bear market.  Many types of bonds have offered a different result, holding up nicely, with a performance ranging from slightly positive to near breakeven.2 As of noon on March 12, 2020, stocks continued downward, with the Dow posting -6%.8 Most bonds continued their more steady performance.

In addition to the WHO declaring a pandemic, the U.S. has closed incoming travel from Europe.  Italy is under a national lockdown, having closed most bars, restaurants, and shops. Rome has suspended non- essential commercial activity, keeping grocery stores and pharmacies open.3 Despite a tally of 1,600 infections with three fatalities, Germany’s Angela Merkel has warned that as many as 60% to 70% of the 83 million Germans may become infected.  Some experts say that may be a worst-case scenario.  Ms. Merkel said that the most important thing is to slow down the spread of the coronavirus to win time for people to develop immunity, and to prevent the health care system from becoming overwhelmed.4

On the other hand, China has declared that the peak of new cases has passed, as new cases of infection in Hubei fell to single digits for the first time.  A senior Chinese medical advisor said on Thursday, March 12, 2020, that the pandemic could be over by June if countries mobilize to fight it5 – which would, indeed, significantly disrupt economic activity. Note that while China aggressively fought the virus with lockdowns and suspension of non-essential commercial activity, it has not yet completed the cycle of resuming all economic activity.  China is re-engaging slowly to avoid restarting COVID-19 infections.

At Laurel Wealth Planning, we are focusing on two missions:  taking care of our clients and taking care of our health (and by extension, the health of others).  In taking care of you, our clients, we will work from the office or home as health authorities advise.  We have instituted back-ups for each role to support continued advice and service.  In terms of health, we are taking a number of precautions and, if needed, our employees will benefit from paid sick leave.

Our Outlook

Our outlook is that the stock market may well go lower.  The stock market tries to “get ahead of the news.”  When information is lacking, it tends to assume a worst-case scenario.  Historically, it has regularly overshot on the upside – an example is our record highs of last year.  And, it tends to overshoot on the downside – an example is the -55% drop in Dow Jones and related indices in 2008/2009, from which we saw a 445% recovery from trough to peak.7 Note that the average bear market since 1929 has dropped -38% and lasted 1.3 years.6 As of 12:00 p.m.. today, the Dow posted -25% (8) from its highs, approximately 65% of the way through an average bear market (noting, of course, that each bear market is different.)

Our Process in Helping you with Your Investing

As you know, in helping you with your investing we start with advising you toward a strong financial plan customized to you and your goals, which, as suitable, includes sufficient income, cash, and bonds to give you time to ride out bear markets.  After a client has a strong financial plan, we then seek to help you make money in the stock market by, among other strategies, buying as bargains materialize.  In implementing this buying, we are very careful to keep the desired level of bonds in place.

A question I’ve been asked over the years is this, “Why not sell my equities now, going to cash, and get back in later?”  The challenge in this is not the sale, but the re-buy.  If the decision-making criteria are to sell on bad news, the opposite of that is buying when the news is more positive.  However, before there is any reliable positive news, the stock market will tend to rally on every positive glimmer, with several false starts – and will be well into a rally by the time the news has improved to a level that offers any reasonable confidence.  Selling on bad news and re-buying on good or even decent news is a very good way to “sell low,” and “buy high,” a costly investment strategy.

As always, please let us know your questions and comments.  Also, please do call us if you would like to discuss your situation or concerns – that is what we are here for, among other things.


1 The Washington Post, March 11, 2020, “WHO declares a pandemic of coronavirus disease COVID-19.”

2 The Vanguard Total Bond Market Index posted nearly 0% from Feb 12 to March 11, including interest.

3 CNBC, March 12, “Italy closes bars, restaurants and most shops as coronavirus death toll jumps 30%.

4 The New York Times, March 11, “Merkel Gives Germans a Hard Truth About the Coronavirus.

5 Reuters, March 11, 2020, “China senior medical adviser:  coronavirus pandemic ‘over by June’ if countries act.

6 First Trust, History of U.S. Bear and Bull markets, 1926 – 2019.

7 finance.yahoo.com, price difference of Dow Jones Index from 3/2/2009 to 2/12/2020.

8 finance.yahoo.com


Dow Jones Industrial Average (DJIA): is an index that tracks 30 large, publicly-owned companies trading on the New York Stock Exchange (NYSE) and the NASDAQ.

S&P 500: Representing approximately 80% of the investable U.S. equity market, the S&P 500 measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested.

BND (Vanguard Total Bond Market ETF): The Fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. This Index represents a wide spectrum of public, investment-grade, taxable, fixed-income securities in the United States—including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities—all with maturities of more than 1 year. The Fund invests by sampling the Index, meaning that it holds a broadly diversified collection of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. All of the Fund’s investments will be selected through the sampling process, and at least 80% of the Fund’s assets will be invested in bonds held in the Index. The Fund maintains a dollar-weighted average maturity consistent with that of the Index, which generally ranges between 5 and 10 years. As of December 31, 2018, the dollar-weighted average maturity of the Index was 8.3 years.

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