Have a Plan – A Message From Chief Market Strategist Art Hogan

Everyone has a plan until they get punched in the mouth.

-Mike Tyson

After hitting new highs in February, the S&P 500 Index has fallen more than 20%, driven by concerns that the coronavirus, Covid-19, will slow global growth and corporate earnings. That puts the US stock market into Correction / Bear market territory. Corrections happen a lot. They are the price we pay for the higher historic returns from equities. How long and deep will this correction be? No one can predict the timing, depth, or length of a stock market correction with certainty. What we do know is that stock market pullbacks have been a normal part of investing. Since 1950, the S&P 500 has, on average, experienced a 5% pullback 3 times a year, a 10% correction once every 16 months, and a 20% decline every 7 years.

After hitting new highs in February, the S&P 500 Index has fallen more than 20%, driven by concerns that the coronavirus, Covid-19, will slow global growth and corporate earnings. That puts the US stock market into Correction / Bear market territory. Corrections happen a lot. They are the price we pay for the higher historic returns from equities. How long and deep will this correction be? No one can predict the timing, depth, or length of a stock market correction with certainty. What we do know is that stock market pullbacks have been a normal part of investing. Since 1950, the S&P 500 has, on average, experienced a 5% pullback 3 times a year, a 10% correction once every 16 months, and a 20% decline every 7 years.

We have seen this before, and we know how the movie ends. There have been 11 World Health Organization announced epidemics, over the past twenty years. The list includes: SARS in 2003; Avian Flu in 2006; Dengue Fever in 2006; Swine Flu in 2009; Cholera outbreak in 2010; MERS in 2013; Ebola in 2014; Measles/Rubeola in 2014; Zika in 2016; Ebola (again) in 2018; and Measles (again) in 2019. Each and every outbreak was met with the same type of fear and panic that we all are feeling today. Eleven out of eleven events saw higher global markets six months later. There will be people that will argue that it is different this time. The virus is more infectious, it moves faster, and we have more people traveling globally than ever before. I would argue that we are still learning about the virus, new case numbers have already peaked in China, and our global health care system and technology have never been stronger. There are companies that have submitted both vaccines and therapeutics to the FDA for testing in record time. Information flows about the threat are happening at record speed as well. So if it is different this time, it may well be that we are moving faster to a fix.

Its human nature to fear the unknown, and when a correction starts, and we are in the throes of indiscriminate selling, agnostic of exposure to the COVID-19, it gets unnerving. We assume it must be the start of something larger. The fact that this current downdraft was catalyzed by a global health epidemic that continues to expand, makes that uneasy feeling significantly worse.

Staying calm through market drops isn’t easy, but it helps to remember that you are investing for the long term and to consider how the markets have behaved in the past. History shows that following market downturns, stocks have recovered and delivered long-term gains. And there are things you can do to stay positioned for a potential recovery, like diversifying, rebalancing, and continuing to contribute to your investment accounts.

Why don’t we just sell everything and wait this out? Get back in when the dust settles? This is the question every financial advisor is getting this week. They’re asking out of genuine curiosity, not just panic or fear. And it’s a great question. The great answer is that you won’t know when the dust settles. There’s no “all clear” sign ever. And when the dust settles, do you think stocks will be at their lows? Or will they have already rallied furiously, in anticipation of this? Let me give you an example. Eleven years ago, March in 2009, the stock market stopped going down. There was no reason. The dust had settled, without fanfare or any sort of official announcement. If you had polled people that day, or week or even month, most would not have agreed that we had seen the worst. The economic headlines were not improving. But there it was. And by June 1st, less than 3 months later, the stock market had climbed 41% from that March low. And even with that having happened, the majority of participants still weren’t clear that the dust had fully settled. That we had, in fact, seen the worst. There were still people 3, 5 and 7 years later who had gone to cash and still hadn’t gotten back into stocks. They missed a new record-high a few years later and hundreds of percentage points in compounding on their assets.

Your retirement plan probably isn’t going to change, nor will the future uses of your money, which means throwing out your long-term plan or radically changing your portfolio makes absolutely no sense. Locking in permanent losses today, while fleeing to an asset class that yields nothing, is a surefire way to be unable to pursue our dreams tomorrow.

So what do we do: Don’t panic, rebalance; talk to your financial advisor; wash your hands; stick to your strategy; and if this type of market volatility has you up at night, recalibrate your equity exposure to match your risk tolerance. And if you have not refinanced yet, take a look at the rates for 30-year U.S. mortgages have tumbled to 3.2%, down from 3.29% last week and the lowest ever in almost five centuries of data, according to Freddie Mac.

The views and opinions expressed herein are those of the analyst Arthur Hogan and are current as of this report’s posting date. This commentary is general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. Neither Art Hogan nor National Securities Corporation is affiliated with the issuers mentioned herein, and no part of this analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the analyst in the report. The views and strategies may not be suitable for all investors and are not intended to be relied on for legal or tax advice. Please note that any investment involves risk including loss of principal. The performance quoted herein represents past performance. Past performance does not guarantee future results. Investors cannot invest directly in an index and performance represents gross returns without net fees if any. National Holdings is the parent corporation for Winslow, Evans and Crocker (WEC), National Securities Corp (NSC) and National Asset Management (NAM). Additional information relative to securities, other financial products, or issuers discussed in this report is available upon request. Neither this entire report, nor any part thereof, may be reproduced, copied or duplicated in any form or by any means without the prior written consent of National Securities Corporation. All rights reserved. NSC is a member of both the Financial Industry Regulatory Authority (FINRA) and the Securities Investors Protection Corporation (SIPC). For disclosures inquiries, please call us at 1-800- 417-8000 and ask for your NSC representative, or write us at National Securities Corporation, Attn. Art Hogan – Research Department, 200 Vesey Street, 25th Floor, New York, NY 10281, or visit our website at www.yournational.com