Market corrections remind us how time in the market matters

The coronavirus crisis continues to cause uncertainty with global financial markets experiencing heightened volatility for extend periods of time.

Despite a coordinated effort from central banks to stave off a recession, major developed markets have tumbled on Monday 16th March before a recovering slightly the following week.

In the US, the Dow Jones fell 12.9% on the 16th March. Investors were spooked after President Donald Trump hinted at a looming recession.

It was the worst percentage fall for the index since 1987.

US markets triggered their ‘circuit breakers’ for the third time in a week.

These circuit breakers bring an automatic stop to stock market trading during a dramatic sell-off. They kick in when the index falls by 7%, 13%, and 20% of the closing price for the previous day.

The picture was only slightly better in the UK, with the FTSE 100 index closing down 4.01%. Elsewhere in Europe, France’s CAC 40 was down 5.75%, with the German DAX closing down 5.31%.

Market falls in the US and Europe came despite a significant fiscal stimulus programme in the US.

The US Federal Reserve launched on Sunday measures including a slashing of their interest rates (to close to zero) and a new $700bn stimulus programme.

This move in the US formed part of a coordinated central bank action in concert with the UK, eurozone, Japan, Canada and Switzerland.

But the markets fell regardless, with investors seemingly concerned that central banks have little room left for manoeuvre.

Instead of calming the financial markets, such dramatic measures taken by the central banks appear to have worried investors about the seriousness of the coronavirus crisis for the global economy.

Another indicator of global economic fortunes, the oil price, fell to under $32 a barrel. Benchmark Brent crude was down by more than 10% today.

We don’t know whether or not there is more of this to come for investors.

Until the coronavirus crisis reaches a peak and new cases begin to subside, it seems unlikely market confidence will return.

For most investors, the best advice right now is to remain invested in a diversified portfolio and hold on for the long-term.

History tells us that financial markets tend to quickly recover following corrections, with the timing of recovery as unpredictable as the timing of falls.

Timing the movement of stock markets is impossible to predict accurately. What matters far more than timing the markets is time in the markets and being there when the recovery begins.