2) Not only coronavirus...
The coronavirus (COVID-19) could be the only reason we are seeing this market correction; however, there could be many other reasons for this market correction. Here is a list of other things going on:
a) Tensions between Russia and Turkey; Russia killed 33 Turkish soldiers and Turkey has called for a NATO Emergency meeting. “An attack on one is like an attack on all” says NATO’s article 5. Does that mean if Turkey retaliates and starts a fight with Russia, all of NATO will get involved?
b) Markets have been overbought (overvalued) for some time now. Some of the large cap stocks (like AAPL) have almost doubled and I don’t think earnings justify such high valuations. Stocks have been priced for a perfect world, but unfortunately, the world is far from perfect.
c) It has been a year since the stock market staged one of its largest rallies in a year (rally from Dec 24th, 2018 to Jan 24th 2020). Everyone who bought stocks during the 2018 trade war correction is sitting on long term gains (15% or 20% tax rate). So, why not sell now and lock in the gains? The tax rate would not change and might go up whether you hold on to the gains for another year or two.
d) Taxes are due soon (April 15th) and investors who have had gains in 2019 need to sell some positions to pay for their taxes.
Investors buying on margins (borrowed money) had reached record levels. With a little sell off (say 5%), those investors may have faced margin calls (requirement to add funds) and have had to sell at any price to pay back the funds they have borrowed.
3) Better time to deploy funds but be patient with the recovery!
It sure is a better time to deploy funds as about everything can be purchased 15 to 20% cheaper than last week. The markets have moved 3 standard deviation from the average. These types of deviations are very rare and present interesting opportunities. However, deploying funds has to be deliberate and cannot be done out of fear of missing out or without regard to long term goals. If this turns out to be a bear market, then the market can fall further, a lot further. There will be painful losses even if the losses do not make sense in the short term. I often tell some of my clients not to look as fear is not your friend especially when everyone else is afraid.
Thank you again for your trust and confidence, I will be calling you in the coming days to check in and discuss your individual portfolios.