Despite a nice recovery day on Tuesday, it now appears that investment markets are in full panic mode, a result of the World Health Organization’s declaration that the Covid-19 virus is a global pandemic. Traders on Wall Street are selling at virtually any price which is causing the markets to drop into bear market territory. The long bull run that began in March 2009 and set many records along the way is now officially over. May it rest in peace and be fondly remembered.

In times like these, it’s almost impossible to keep a rational perspective.  We find ourselves in the midst a herd stampeding toward the exits, and this particular stampede can fairly be described as historic. Michael Batnick, director of research at Ritholtz Wealth Management in New York noted that this is the fastest bear market ever.  That means this is the fastest that U.S. stock market has experienced a decline of 20% or more going back to 1915.

On average, the number of days from market peak to 20% decline is 255, and the median is 156.  The recent market selloff reached this dubious achievement in just 17 trading sessions.  By contrast, the fabled 1929 market downturn took 36 sessions.

The Covid-19 pandemic (as it is now known) should first be considered a health issue, and everyone should take precautions to protect themselves and their families from its spread.  Your health is more important than your portfolio.

Is your health at risk?  The World Health Organization has published a graphic which suggests that the Covid-19 virus in China has been more deadly, on a percentage basis, than the Spanish flu epidemic that raged across the world in 1918-1920.  So far, it has been more deadly than cholera, the swine flu and hepatitis A.  On the other hand, reports indicate that the elderly and those with pre-existing health issues are far more likely to experience significant symptoms.  There are indicators that the death rate outside of China has been roughly half that of the Chinese experience.  More testing is needed, however, before we know the full extent of the infected population and the mortality statistics for those who are infected.

Once health precautions are taken, it’s appropriate to address how best to navigate the current market conditions.  News reports indicate the possibility that the U.S. government will propose a payroll tax cut and possibly bailouts of key publicly traded companies in the travel and entertainment industries. The Federal Reserve Board has cut a key interest rate by half a percent—a dramatic move that seems to have had no more than a one-day impact on market sentiment.

Historically, bear markets have been less impactful than their bull market counterparts as indicated on the chart below:

Of course, you could argue that a global pandemic is different from a housing market crash. Research analysts at Goldman Sachs took a look back at “event-driven” bear markets – market declines not driven by an economic recession but, instead, triggered by things like war, oil price shocks or emerging-market crises.  They found that the average event-driven bear market resulted in an average 29% decline.  The report notes that we’ve never before entered a bear market due to a viral outbreak, but previous bear markets triggered by “exogenous shocks” have recovered previous levels within 15 months.

Good news can be found for many investment portfolios: during the downturn, 20-year Treasury bonds have gained 24% as bond yields have fallen to record lows.  The 10-year Treasury yield experienced its biggest weekly drop since December 2008.  This performance, so directly counter to stock movements, explains why it is so necessary maintain diverse investments within a portfolio.

The harder conversation is about market timing.  Most people understand that it is impossible to time the market without a working crystal ball.  But this is easily forgotten when daily headlines announce that the stock portion of your portfolio has fallen by 20% in record time.  The natural question is: Should I get out now and avoid more of the same?

The only rational answer to this question is that it’s never been a good idea to sell when everybody else is selling just as it’s never been a winning strategy to buy stocks when everybody else is wildly bullish.  The best strategy has consistently been to ride out the downturn and experience the subsequent upturn—which may come tomorrow, next week, next month or next year.

Bear markets like the one we’ve just entered certainly impact your future financial health, and there is a real danger in selling at the bottom and missing out on the coming recovery.  Whatever thoughts you’re having and decisions you’re considering, we are here to help guide you.