A Bruising Close to February for Stock Markets

What happened.

After a positive start to the month, stocks fell sharply in response to growing uncertainties about the impact of the coronavirus on economies and companies around the world. Developed-market international stocks were hit the hardest, with the MSCI EAFE Index down by 9.04 percent for the month. U.S. stocks fell slightly less, with the S&P 500 falling by 8.23 percent. Emerging-market stocks, including Chinese stocks, fared slightly better, down by only 5.27 percent (MSCI Emerging Markets Index). However, Chinese stocks had fallen more in January, when investors saw the coronavirus as being an emerging-markets problem. Bond prices rose (meaning interest rates fell) as investors moved to less risky assets. The Bloomberg Barclays Aggregate Bond Index was up by 1.80 percent.

Why it happened.

It seems a long time ago, but earlier in the month, stocks were rising strongly, boosted by positive economic news. Then on Friday, February 21st, there was news of an increase in the number of people infected by the coronavirus in South Korea, and investors realized that the virus was now global. With little known for certain, markets reacted strongly to any news about the virus. The uncertainty continues, and markets will likely continue to be volatile. Nobody knows whether the news will be better or worse than markets already expect—and remember, it’s surprises that move markets. The question now is not whether the coronavirus will be global, it’s whether its impact will be more or less severe than markets expect.

What this means for you.

Volatility in the markets can be very unsettling but it’s important to remember that the big declines in stock markets reported in the news don’t mean your retirement income is experiencing a similarly large decline. This month’s sidebar gives advice on keeping your focus on your financial plan and your long-term goals. Having a diversified portfolio is key. At Financial Engines, we build you a diversified portfolio personalized to your situation and preferences. Your retirement accounts will have fallen this month and unfortunately on the road to retirement, there will inevitably be bumps along the way. Keeping focused on your long-term financial plan and resisting making abrupt changes are the most important things you can do right now. If you do have concerns or want to talk about how the markets are impacting your portfolio, please reach out to one of our advisors. We are here to help.

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