With a growing number of countries reporting new cases of the coronavirus, the obvious spread of this dreaded virus prompted a massive panic sell-off, the likes of which haven’t been seen since 2008. Investors’ fears of widespread economic tumult caused by the coronavirus were too much to ignore, despite last Friday’s statement from Fed chairman Jerome Powell that the central bank was prepared to cut rates if necessary when it meets in March. Crude oil prices fell by over $6 per barrel since the end of January. The 10-year Treasury note fell to a record low as money flowed into long-term bonds, pushing prices higher and yields lower.

By the close of trading on the last day of February, each of the benchmark indexes listed here sustained major losses, led by the Dow, which fell by more than 10.0%. The small-cap Russell 2000 dropped more than 8.50% for the month, followed by the S&P 500, the Global Dow, and the tech stocks of the Nasdaq. Year-to-date gains achieved in January and the first part of February were wiped out, with three of the benchmark indexes listed here trailing their 2019 closing values by double digits. The Russell 2000 fell by nearly 12.0%, followed by the Dow and the Global Dow, which lost close to 11.0%, respectively.

On Monday, the markets took a historic plunge with the Dow sinking 2,000 points, making the single worst day we’ve seen since 2008. From the worldwide panic surround coronavirus to oil price wars adding fuel to the fire, even interest rate cuts and stimulus activity may do little to help when people are canceling travel plans and not leaving their homes to spend money.

The good news? For the past month, Beacon’s president and founder, Chris Cook, has been speaking with national media about the anticipated specific dangers of the coronavirus on the global markets. For more than a week, our investors have felt relief being removed from the daily volatility and uncertainty since the 2.0 stop-loss was triggered on February 28. And, since the day you invested in Beacon portfolios, they have been designed specifically to handle volatility just like this. They already contain the essential ingredients needed to minimize losses before they become catastrophic.

Consider this your triple-layer defense system within your portfolios:

1) Maximizing diversification through equal sector allocation (protecting against systematic risk)

2) Minimizing losses through stop-loss protections (protecting against unsystematic risk)

3) Maintaining discipline through a mechanical approach (eliminating emotions from investment decisions)

ARE WE ENTERING A BEAR MARKET?

The impact of pandemics on the stock market is not always predictable or even long-lived. However, the fact coronavirus started in China is deeply impacting global supply chains. Added to this, the virus is now spreading across highly developed countries worldwide and resulting in more significant economic concerns than we have seen in recent history. The only thing that is certain? The markets hate uncertainty. Until this virus is contained and emotion levels out, it is not unlikely this extreme volatility to continue.

So, what is the probability this will be more than an emotional pull back and turn into a full-blown bear market? In looking at the DJIA from 1871 to 2016, once the markets reach a 20% drop from its most recent high, it has resulted in a bear market nearly half of all cases (44%). As of the market close on March 11, we have now crossed this threshold. Plus, the severity of market losses during bear markets has averaged nearly 40% since 1929 and been even more significant this century.

If you were to ask your clients if they are willing to take about a 50/50 chance of losing potentially 40% or more of their savings, what would they say? 

SEEKING SAFETY IN FIXED INCOME

The overwhelming response we have been receiving since the stop-loss was triggered on February 28 has been one of relief. Clients who benefit most from our portfolios are happy to be on the sidelines away from 1000-point plus market swings. They are happy to have a plan that puts emotion and extremes at bay. They are not concerned about missing out on part of a rebound or even a potential home run. What they care about is not blowing up their life savings. And in case that peace-of-mind wasn’t enough, fixed income has and likely will continue to perform better than expected as investors worldwide are seeking respite from volatile equity markets.

Be sure to visit the Advisor Toolbox or contact your wholesaler for additional resources and client-approved materials to help communicate and re-enforce the values our portfolios can provide.

“It’s clear that the coronavirus is spreading throughout the world, so [company] earnings will be impacted for the next few months at a minimum. The question is whether the built-up demand will flood back into the market once it’s contained.” – Chris Cook

Reuters: Expected U.S. rate cut benefit may not head off coronavirus hit: Beacon Capital

How can investors protect their holdings in the stock market as it reacts to fears over the spread of the coronavirus? Beacon Capital Management president Chris Cook explains.

The Wall Street Journal: Your Money Briefing

“Are you worried about the economic effects of the coronavirus spreading to your portfolio? During our headlines segment, we’ll ring up Chris Cook, president of Beacon Capital Management, and get some answers on what you can do to inoculate your investment strategy.”

Stacking Benjamins Podcast

Be sure to visit Beacon’s News & Press page for the latest credibility pieces to share with your clients and prospects, and follow Beacon on LinkedIn for the latest updates as they happen.