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On September 11, 2001 I had a morning meeting with a recently retired couple, and as we walked into the conference room the television in our lobby was broadcasting live coverage of a fire in the North Tower of the World Trade Center, but exactly what was happening was unclear.  By the time our meeting ended just an hour later, the world had changed.

The 9/11 terrorist attacks launched a cascade of events intended to protect us and control the damage.  The FAA grounded all flights over and bound for the United States.  Over 3,300 commercial flights and 1,200 private planes in the air were guided to land in Canada and the U.S.  The White House and U.S. Capitol building were evacuated.  All bridges and tunnels in NYC were closed, U.S. military forces were on high alert worldwide, and the U.S. Navy dispatched missile destroyers to New York and Washington, D.C.  To prevent a stock market meltdown, the New York Stock Exchange (NYSE) and the Nasdaq did not open for trading.  In fact, the markets remained closed until September 17 and when they did reopen, they ended the week with the biggest weekly loss in the NYSE history.

American Airlines suffered a 39% decline, United Airlines 42%, and financial services and insurance companies dropped significantly as well.  We were all operating in an unfamiliar, scary world with a sense that something terrible might happen again at any minute.  People stopped traveling; some were afraid to fly for a long time and the hospitality industry suffered as a result.  Projects and investments were set aside as people worked to regain their faith in the world and the markets.  Remarkably, the Dow Jones, Nasdaq and the S&P 500 recovered to their pre-9/11 price levels in about a month.

COVID-19 is a disease with a different timeline and hasn’t delivered the same shock of 9/11.  But as the saying goes, history may not repeat itself but it sure does rhyme.  With the 24-hour news cycle and constant updates on our phones, computers and televisions, it’s difficult to pull ourselves away from the constantly breaking news about COVID-19.  Cancelled conferences, travel restrictions, and increasing numbers of people diagnosed with the virus create a steady drumbeat of bad news that begins to wear on us.

Fear can be a good thing, reminding us to wash our hands and take reasonable precautions to prevent getting sick.  But fear can also cause us to overreact in emotional ways.

Shortages of toilet paper, disinfectant and face masks – which we’ve been told are not even a good defense against the virus – have been reported across the country due to people buying up excess supplies of things they fear will be in short supply.  Of course, their actions create a self-fulfilling prophesy as overbuying creates the very shortages they feared.

The same fear that creates shortages of supplies can cause stock markets to drop in unpredictable ways.  New information, like Saudi Arabia’s decision over the weekend to aggressively cut the price at which it sells its oil, is interpreted through a filter of fear.  The Organization of the Petroleum Exporting Countries (OPEC) and Russia have been hurt by the rise of U.S. oil production over the past few years, and recently they’d been trying to work out a deal to reduce production to increase oil prices.  When no agreement could be reached, Saudi Arabia decided to grab market share for itself by lowering its prices.  This created one of the biggest one-day price drops in the history of Brent crude, the international oil benchmark.  A few months ago, this may have had little impact on stocks outside the energy sector or countries like Russia whose economies are dependent on oil.  But given the current collective state of mind of investors, the news sent stock markets tumbling.

While it will have an impact on the economy as projects and travel are put on hold, there does appear to be a slowdown in cases in countries where the virus first appeared.  Here in the U.S. we may just be getting started, but this does not appear to be the Black Plague.

Fear can cause us to focus on all that can go wrong and lead us to feel that negative events will continue to cascade indefinitely.  Falling oil prices may slow economic growth in areas of the U.S. that are more dependent on oil, and it creates concerns about overall inflation expectations in the United States.  But even negative news creates opportunity for some segments of the world.  Falling gasoline prices can be good news for U.S. consumers, and countries with significant oil imports, like India, will benefit as their costs drop.

Before the virus, the US added 273,000 jobs in February and the unemployment rate fell to 3.5%.  Hourly wages had also increased.  This followed job gains of 184,000 in December and 273,000 in January, for a 3-month average rate of 243,000, indicating the US economy had some strength behind it.  It may feel like that’s all in the past now, but assuming anything about the future can be hazardous to your wealth.

This week 11 years ago the U.S. stock market hit its bottom of the Great Recession and began reversing course.  There was no clear reason for it, and the headlines weren’t exactly hopeful, but we now know with perfect hindsight that it was a great time to invest in stocks.  The question is, where are we now?

Times like these are why we are so boringly repetitive about having a financial plan.

We’ve spent the last few years talking to people who were concerned about investing because the market had climbed significantly from its March 2009 lows.  If you’re in the process of saving money for a longer-term goal like college for your young children or retirement for you, times like these present wonderful opportunities to buy into stocks while they’re on sale.

If you’re currently living off your savings and are concerned about the impact of the market drop, having a cash and bond cushion to get you through these times when you don’t want to sell out of stocks is important.  Shorter term bonds with high credit ratings are where the safe harbor money flows when others panic, creating an opportunity for price appreciation in bonds as well.

Fear can filter out the things we need to remember when we’re faced with depressing headlines.  Last week Chip wrote a great blog outlining how the market has responded, why and what to do about it as a result.  We are here to listen, talk with you about your specific situation, and help.