Understand how the unprecedented COVID-19 pandemic affected investment markets and what that might mean for your investment portfolio moving forward.
As COVID-19 spread across the world with unprecedented speed, consumer and investor behavior dramatically shifted. Triggered by massive selloffs, the major stock indexes plummeted. The Dow saw its biggest one-day drop since “Black Monday” in 1987, and the S&P 500 dropped over 20 percent from its peak in just 16 days.
Let’s explore the abnormal shifts that occurred in both the stock and bond markets as a result of the coronavirus outbreak and how it may have impacted your investment portfolio.
Stocks
During times of uncertainty, the stock market typically falls as investors search for less volatile options. As COVID-19 spread, stocks saw huge declines as investors who didn’t have the goal timeline or risk tolerance to stay in the market sold off assets and searched for safer returns.
Consumer behavior has also impacted the stock market. With much of the country practicing social distancing and following stay-at-home orders, industries that depend on consumers – such as travel, entertainment, and hospitality – have been hit especially hard.
Bonds
As investors fled from the volatility of the stock market, many turned to the fixed returns of bonds as a way to keep their assets growing. However, the surge in demand for bonds, the Federal Reserve’s interest rate cut and the anticipated recession pushed bond prices up and yields down. In fact, the rate on 10-year treasury bonds hit a record low of 0.318 percent, though it is starting to rise again.
Though the stock market benchmarks seem to be rebounding and bond yield rates are slowly rising, “combined stock and bond returns over the next seven to 10 years may be lower than their historical averages as we come away from the precipice associated with COVID-19,” says Alan McKnight, Chief Investment Officer for Regions Asset Management in Birmingham, Alabama.
Other Markets
While stocks and bonds have undergone record shifts as a result of the COVID-19 pandemic, other investment markets have been affected as well.
Typically, falling interest rates would suggest a rise in commodity prices as financing inventory stockpiles becomes more attractive. Instead, the commodity market has seen unprecedented volatility. For example, with transportation around the globe dramatically reduced, gasoline and jet fuel prices have sharply declined. Other key commodity suppliers have slowed or stopped production, leading to dwindling access to commodities.
Additionally, foreign markets have been a volatile space. The volatility in these markets may vary dramatically depending on the degree to which the nation has been affected by the pandemic. Markets that have been especially impacted, such as Italy or Spain, could require unique recovery expectations.
Ultimately, the duration of the pandemic and the continued response of the U.S. government will shape the speed and size of the economic recovery. Now is a critical time to review your goals and investment timeline and adjust your portfolio as needed.
If you’re unsure where your portfolio stands, review your goals and investments with a Regions Private Wealth Advisor.
