Q: This has been a rough week for the market. Should I be worried?
A: The quick answer is no. The improvement of the market since the pandemic-low has been driven by optimism in a smooth road back to open economies. The current new wave of infections demonstrates how difficult the virus is to control. This is certainly true in Europe where the infection rate has dramatically increased.
Now that a rougher path is clear, the markets are pricing in that expectation. It is possible that the reaction will be worse than what is appropriate given what is actually happening. Markets often overreact to bad news or perceived bad news.
While the rise in Covid cases poses economic risks, the economic recovery is continuing. We recently wrote that the “easy” part of the recovery is past and that getting back to pre-Covid levels will take some time. This is especially true in the labor market and will continue to be the case until the spread is reduced and/or a viable vaccine is released. Patience is required on both counts.
Long-term investors should continue to focus on long-term goals and keep a focus on simple habits, like systematic investing, that are more likely to be positive.
