Investors have again become more pessimistic and global equities have sold off over worries about the continued spread of the SARS-Co V-2 (Wuhan Coronavirus) beyond its epicenter in the central province of Hubei. Infections have now been reported in 28 countries, and news from Iran, Italy, and Spain provoked fear about what could happen in the U.S. The Centers for Disease Control and Prevention (CDC) today warned about potential “disruption to everyday life.”

Although the market reaction was originally focused on commodities, oil markets, and those industries especially impacted by the virus (e.g., airlines, etc.), the U.S. equity market has begun to react, with a 1,000 point down day for the Dow Jones Industrial Average (DJIA) on Monday, February 24 and further declines today. The clear implication is that global growth will come down, especially in the near term, and particularly in China and neighboring countries.

The silver lining, if any, is that bond investors have been very positively rewarded during this time period, benefitting from central bank polices to lower interest rates around the world. We have seen many countries (Brazil and Indonesia being the latest examples) lower interest rates over the past six months, and increasingly investors are wagering that the U.S. Federal Reserve (Fed) will be forced to once again lower rates after doing so three times in 2019, especially if the coronavirus slows growth here.

The Bond Fund and balanced funds including the Target Annuitization (TAD) Funds and the Pension Boards Balanced Fund own ample bond (fixed income) securities to benefit from lower interest rates and price appreciation in those markets. The Global Sustainability Index Fund (GSIF) has little to no exposure to emerging markets or China. The Equity Fund has some cash buffer and diversifying securities, such as hedge funds, to cushion the blow of a selloff.

Judging from past precedents, U.S. Treasury securities and other safe-haven assets could continue their rally for the near term. These fears may keep the upper hand for risk assets such as equities until there’s a signal from the Fed and/or we get better news on the virus. If there is a greater selloff than we now anticipate, we would not hesitate to add to equities, especially in balanced funds, for your long-term benefit.

As a retirement investor, you should focus, always, on the appropriate asset allocation, or mix among stocks, bonds, and cash. The easiest way to do that is to invest in the Target Annuitization (TAD) Fund nearest to your retirement date. Again, these funds become more conservative as retirement approaches, by owning less equities and more fixed income.