The past may not hold any clues.
“Fear of death is what is driving people’s panic,” said one investment adviser. “The sentiment shift is as extreme as we have ever seen.”
The coronavirus has ripped United States financial markets from their moorings. Even veteran investors say they’ve never seen the turbulence across all markets that we have experienced in recent days, making it extremely difficult to use the past to predict what will happen next or tell people how to protect their retirement income. In one important way, U.S. companies were actually in better shape on the cusp of the Great Depression than many are now.
U.S. stocks have lost 35 percent from their peak in mid-February. Corporate bond prices are down at least 17 percent, even those issued by higher-quality companies. Prices of municipal bonds, a refuge for risk-averse investors, have also collapsed — a Vanguard fund holding these obligations is down 15 percent. Even U.S. Treasury bonds, the ultimate safe haven, are off their peaks.
Another shocker is the price of gold. Normally, gold and gold mining stocks rise in periods of fear and uncertainty because investors view the precious metal as a reliable store of value. Not this time. An index of gold mining stocks is down 34 percent from its March peak.
For now, these dislocations are the result of a rush by investors, many of them carrying heavy debt, to sell everything that carries risk. That always happens in a market decline, when the fear of losses supplants investors’ fears of missing out on gains.