Global stocks sold off sharply this week, with the S&P 500 having its worst single day performance since Black Monday in 1987. This also marks one of the fastest bear markets in history, after U.S. stocks were hitting record highs only three weeks prior.

As market stress took hold, correlation between asset classes increased with investors selling safe-haven assets such as bonds and gold, in addition to stocks. Markets then rallied Friday in one of the strongest days since 2008, as world governments stepped up efforts to prevent economic fallout.

Weekly Returns

• S&P 500: 2,711 (-8.8%).
• FTSE All-World ex-US (VEU): (-13.9%).
• US 10 Year Treasury Yield: 0.99% (+0.25%).
• Gold: $1,521 (-9.1%).
• EUR/USD: $1.109 (-1.7%).

Major Events

• Monday – Global markets sold off sharply after Saudi Arabia pledged to boost oil output and initiate a price war, and fears mounted over the coronavirus.
• Tuesday – Delta and American Airlines announced they planned to cut flights and freeze hiring.
• Wednesday – The World Health Organization, or WHO, officially declared the coronavirus a global pandemic.
• Wednesday – President Trump announced the U.S. response to the coronavirus, which included a full ban on travel from Europe.
• Wednesday – Sports leagues around the country, including the NBA, began suspending their seasons due to risk of coronavirus.
• Thursday – U.S. Stocks experienced their worst single day of performance since Black Monday in 1987. The S&P ended the day down -9.5%.
• Thursday – The ECB announced stimulus measures which included bond purchases and cheap loans, in an effort to mitigate the economic impact from the coronavirus.
• Thursday – U.S. Federal Reserve pledged to start another bond buying program.
• Friday – President Trump declared a national emergency over the coronavirus outbreak.

Our Take

Global stocks officially entered a bear market this week, ending one of the longest bull runs in U.S. history. The coronavirus has gripped the world, and while it has not yet reached millions, there is deep concern it has much further to spread and could ultimately result in a global recession. Not all bear markets end in recession, but most do. And given the coronavirus’s impact on supply chains, manufacturing, and consumers, we now believe a global recession is more likely than not.

However, it is impossible to predict the duration and magnitude of a recession, if one does in fact occur. Much will depend on measures taken to contain the virus. More heavy-handed approaches, such as those employed by China and South Korea, have so far proved most effective at slowing its spread. And despite the temporary economic hit in China, business activity is already beginning to restart. If the virus does not reaccelerate in China, it would be a strong sign that the global economic impact may be short in duration. If it does, the situation becomes more serious.

The same can’t be said for the U.S. and most other countries, where containment measures have so far been less rigid. This means it is highly likely conditions will get worse before they get better. The U.S. has deployed both monetary and fiscal stimulus in an attempt to alleviate economic pain. But the impact of monetary policy will be limited. Most of the relief will need to be fiscal in nature, and we haven’t yet seen any broad sweeping changes.

What should you do as an investor? It depends on what you were doing before. If you were already invested in a properly diversified, long-term strategy, you probably shouldn’t do much.

There is always an urge to “act” during times of panic, but this tends to do more harm than good. Try to put things in perspective. This is certainly a scary time, but when it comes to the market, the world has been here before. The average bear market for the S&P 500 is down about -35%. By the end of the day Thursday, the S&P was down almost -27%. Does this sound like the right time to abandon your strategy and go to cash? Probably not, but it’s precisely what many investors do. As we’ve said before, the best thing you can do right now is stay disciplined, don’t panic, and stick to your long-term strategy.

But if your job security has significantly changed, that may be reason to reevaluate. And if you have concentrated positions, it is also a good time to assess the risk here. In a recession, some companies that seemed strong just last month will fail.