Dealing with volatility: What you need to know now

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Timely insights to help you manage risk when markets shift.
February 24, 2020

Coronavirus concerns affect markets & economy

The opinions are those of the author(s) and subject to change.

So, what just happened?

A fresh new wave of concern has swept through the markets, driven by news of the virus's acceleration in countries as wide-ranging as Italy, Iran, and South Korea. By midday, the S&P 500 had dropped 5% from its highs. Just last week, the markets had been up 6%, says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.

Here's our take on what this means

"Today's market drop was an indication that the coronavirus may be more than a passing crisis. "Its rapid spread has markets rethinking their optimistic projections for the 2020 economy in the U.S. and globally," says Hyzy. In addition to affecting the health of those diagnosed, it has begun disrupting international trade and supply chains. "The key question is how long the disruption of those supply chains will last. At this point, we don't know," he adds.
Another key question is whether the Federal Reserve will move to help stabilize the situation by cutting interest rates. "We will likely get more commentary around this by the end of March," Hyzy says. "We'll be watching the data closely." However, at this point, he says, "we believe the risk of a recession remains very low.

What can investors do right now?

Hyzy cautions investors against making precipitous moves with their portfolios. "The data at this point are very fluid," he says. The best guidance for long-term investors is to start developing plans now to diversify their portfolios as the extent of the virus becomes clearer in the months to come. While they may lose sight of the need to diversify when markets are rising, during times of volatility, "diversification is one of the most important portfolio tools an investor can have."
Information is as of 02/24/20.

Opinions are those of the author and are subject to change.

The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group ("ISG") of GWIM, a division of Bank of America Corporation ("BofA Corp.").

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.

Diversification does not ensure a profit or protect against loss in declining markets.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets.

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