Special Update: Virus Monday

After shrugging off coronavirus concerns in recent weeks, news over the weekend of large-scale quarantines in South Korea, Italy, and Iran caught the market by surprise, and gave us “Virus Monday".

Worries over the economic impacts of coronavirus caused the S&P 500 to have its worst day in two years, falling -3.4%. Tuesday provided no relief, with the market pulling back another -3.0% as concerns mounted after a Center for Disease Control (CDC) announcement that the US should brace for domestic outbreaks.

While market pullbacks are never fun, days like Monday and Tuesday are not out of the ordinary. Historically, we can expect to see a daily 3% drop once every five months, or roughly twice per year. The fact that it’s been two years since we’ve seen daily volatility like this speaks more to how good the market has been over that period and less to the anomaly of Monday and Tuesday.

Today, we are currently down nearly -8% from the all-time high on February 19, 2020. In this bull market cycle, which began in March 2009, we’ve had 25 corrections of 5% or more, with this one marking the 26th. Each time it felt like the beginning of the end. Yet each time we rallied back, usually in a few weeks or months.

Instead of trying to time the market and predict which one of these corrections will turn into an outright bear market (and one of them eventually will), our efforts are better spent making sure you have the right portfolio risk and structure. The mix between your equities and more defensive bond holdings provides diversification and a cushion during market pullbacks. Making sure that balance meets your liquidity, cash flow needs, and risk parameters is key to surviving every market cycle. We have also been adjusting portfolios toward high-quality equity holdings in recent years, focusing on defensive sectors that offer good relative valuation.

The most important reminder is not to panic. The financial news, politics, and even your neighbors are prodding you to make a rash decision. Instead, focus on your long-term goals and the investment plan you’ve put in place.

If you have any questions about the market, your account, or would like to discuss your investment plan, we would be happy to visit with you. Please reach out to any one of our team members at (406) 839-2037 to schedule a meeting.

The views expressed in this newsletter represent the opinion of Allied Investment Advisors, a Registered Investment Adviser. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment or services. The information provided herein is obtained from sources believed to be reliable, but no representation or warranty is made as to its accuracy or completeness. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results. Investments are not a deposit of or guaranteed by a bank or any bank affiliate. Please notify Allied Investment Advisors if there have been any changes to your financial situation or investment objectives or if you wish to impose or modify any reasonable restrictions on the management of your accounts through Allied Investment Advisors.