Investors entered 2020 with a relatively positive view of the economy and their own financial prospects. When Spectrem asked investors in January if they felt their financial situation today was better than a year ago, 68 percent agreed and 51 perceent indicated they felt their financial situation would be even better a year from now. The biggest concern of investors regarding the stock market was the outcome of the 2020 Presidential Election. Many investors felt the market would fall significantly if the Democratic nominee should win the election.
But the market is currently experiencing a sell-off, dropping about 1,000 points on February 24th. This sell-off is primarily being blamed on coronavirus fears which increased significantly when reports in recent days identified a spread of the virus into Italy. The sell-off is also occurring after a weekend in which early primaries and caucuses placed Bernie Sanders as the leading contender for the Democratic nomination. So what is really driving the markets and how are investors likely to react?
Research Spectrem released today, February 24th, showed investors rated the impact of the corona virus on the economy at 61.4 on a scale of 0-100 with 0 being “no impact” and “100” representing significant impact. Based upon Spectrem’s years of experience researching affluent investors, a rating of 61.4 is relatively high. Generally, investors are somewhat reluctant to express concern about the economic impact of various topics in the news and any rating above a 50 is significant. The research was completed as of Sunday night, February 23rd, and does not reflect any of the reports or reactions experienced on Monday.
This type of research on similar issues impacting the market is generally available through Spectrem’s Investor Profile Tool that is updated on a monthly basis.
The corona virus is only one factor currently impacting the markets. Our monthly election report, Wealthy Investors and the Election: A Guide for Financial Advisors in 2020, is released on the 10th day of each month. In our February report it indicated that a third of investors believe the stock market will fall below 25,000 should the Democratic nominee win the 2020 Presidential election. Some of the Democratic candidates cause even more dramatic concerns regarding the impact on the Dow than others (with Bernie Sanders causing the most concern).
It would be wise for financial advisors to reach out to their clients in the short term to allay their concerns regarding both the coronavirus and the election. While the outcome of both of these issues is not clear, investors need to know that their advisors are developing a strategy to make portfolio changes, if and when required. While it may be that both of these issues will become irrelevant in a few months, at a time when investors are somewhat nervous, communicating with their advisor in some manner may provide the confidence they need.
So the answer to the question is “yes”, investors are worried about the coronavirus. The coronavirus and other factors (Bernie Sanders?) are making them very nervous, therefore it’s time for financial advisors to reach out and hold their hands through a volatile period.