Beginner’s Guide to Market Volatility

The market just had its worst week since 2008 — here's what to expect from the week ahead


What a week for the U.S. stock market. In addition to plunging into a correction, defined as a decline of at least 10% from a recent high, the major benchmarks endured their worst week since the financial crisis.

The S&P 500 tumbled more than 11% during the week, and this index capped off its worst month since December 2018. To blame for the market's slump is the coronavirus and concerns that it will hamper economic growth, particularly because it has spread to the U.S. Meanwhile, the yield on the benchmark 10-year Treasury note, which moves inversely to price, has fallen to an all-time low, as has the 30-year rate.

The week ahead could be another wild one in markets, as traders continue to monitor the coronavirus outbreak. In addition, voters in 14 states will cast ballots on Super Tuesday, which accounts for about one-third of the total delegates needed to secure the Democratic party nomination. Finally, Friday brings the much-watched monthly jobs report.

Here's what to watch in the stock market during the week ahead — and how the news could affect your bottom line.

Stock market enters first correction since 2018

What's happening: The U.S. stock market fell for seven straight days and entered its first correction since 2018. The S&P 500 now is down almost 14% from its all-time high on February 19, and traders will closely monitor news about the outbreak to see if there's reason to feel optimistic it will be contained soon — thus limiting the potential toll on global economic growth.

Why it matters: Wall Street was worried a correction was coming, though this one happened particularly fast. And while these types of declines are scary, they're also normal, and happen less than once a year.

Long-time investors should also be mindful of ignoring short-term market disruptions and instead focus on the fact that the market has always rebounded from these types of slumps. As legendary investor Warren Buffett recently put it: "We're buying businesses to own for 20 or 30 years ... and we think the 20- and 30-year outlook is not changed by coronavirus."

What it means for you: Yes, the value of your portfolio has likely tumbled along with the broader market. Unless you're selling investments, you're not actually incurring a loss, however. Experts suggest you focus on the fact that every downturn is an opportunity to buy more stocks when prices are lower, using strategies like dollar-cost averaging or lump-sum investing.

Super Tuesday arrives at an interesting moment

What's happening: The 2020 election season heats up in the week ahead. In addition to the South Carolina primary on Saturday, voters in some of the largest states like California, Texas, North Carolina, and Virginia will help determine who will be the Democratic party's nominee for president.

Why it matters: History suggests that Super Tuesday has rarely been positive for the stock market. Since 1996, both the S&P 500 and Dow Jones average have fallen about 83% of the time in the six periods leading up to Super Tuesday, with each benchmark falling an average of 0.7%. And in a note to clients, Goldman Sachs said it expects there to be turbulence around these contests, adding to an already volatile market backdrop.

What it means for you: Even before the coronavirus rocked markets, experts cautioned that the 2020 presidential election could be a source of some bumpiness leading up to election day in November. Still, it's important to avoid making emotional decisions based on politics with your portfolio. Since 1928, only three presidents have seen the stock market end up lower on their watch.

The bottom line

There's no doubt the past week has been rough for the market. While the potential impact of coronavirus is scary, both in terms of its health and economic impact, though, legendary investor Warren Buffett says long-term investors don't need to worry. That's because the market has always bounced back, even from worse sell-offs than the current one.

Remember that short-term turbulence can be a good opportunity to buy stocks at lower prices. Stick to some of the tips for beginner investors, which are sound no matter how long you've been investing.

Finally, continue adding money regularly to your portfolio, focusing on ways to manage risks and resisting the urge to sell investments. No matter what happens in any given week, it's important to keep perspective and avoid letting headline news affect your long-term investment strategy.

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