How the COVID-19 sell-off compares with previous market slides

The COVID-19 pandemic is sending shock waves through the global financial markets, but veteran financial advisers can look back over previous crises to offer the kind of perspective that investors and even other advisers are searching for.

“People remember the 2008 financial crisis, but this is more similar to 1987 because of the velocity of the decline,” said Rick Buoncore, managing partner at MAI Capital Management.

The S&P 500 Index, which has fallen by more than 26% since the start of this year in the wake of the fast-spreading virus, is still a long way from finding its footing, as illustrated by its 12% drop Monday, which followed a near 10% spike on Friday.

Ken Van Leeuwen, founder of Van Leeuwen & Co., has been working in financial services since 1987, and he believes both investors and advisers are better equipped now to handle this kind of market decline.

“Some of my clients have been with me for 30 years and they’re staying pretty patient, because I think people are more informed now than they were during past corrections,” he said.

Even though Mr. Van Leeuwen admits the coronavirus and the economic fallout “came from out of the blue,” he credits the media coverage and social media for helping investors to stay informed and keep things in perspective.

By contrast, he said, if investors and consumers in general had understood the potential risks facing the global economy during the 2008 financial crisis, their reaction could have resulted in bedlam.

“I think there would have been much more panic if people realized how vulnerable the banking industry was back then,” Mr. Van Leeuwen said. “Maybe we’re better off that we lived through a thing like 2008.”

[More: Clients keep their cool as stocks tank]

Dennis Nolte, vice president at Seacoast Investment Services, agreed that the volatility in financial markets is more extreme than anything in recent memory, but he said the fact that the key drivers are generally noneconomic makes this correction unique and in some ways more manageable from a financial planning perspective.

“This seems worse and it looks like there’s no bottom in sight, but any client feedback thus far hasn’t been about getting out of the market like it was in 2002 and 2009,” he said. “As an adviser, we’d been advocating risk reduction since last February and March, and right now we’re sitting tight, not buying, not selling. And any new rollover monies or taxable account monies people want to put to work we’re sitting on until the volatility calms down. Big behavior difference for both this adviser and his clients.”

Unlike the 2008 financial crisis or even the bursting of the dot-com bubble earlier in that decade, advisers say the current market pullback at least started independent of major economic weaknesses and problems.

The flip side of that is that even something as mysterious and scary as a pandemic is easier for most people to understand than a complex financial crisis.

“Right now, people might have less fear because they understand the flu virus a lot more than they did the financial crisis,” said Tim Holsworth, president of AHP Financial Services. “Most clients didn’t even know what Lehman Brothers was before 2008.”

“It’s no surprise to me that the stock market went down big on Monday following all the news over the weekend when people didn’t have any sports to watch on TV,” he added.

Julia Carlson, founder of Financial Freedom Wealth Management, said the mood feels more like the period following 9/11 than it does the financial crisis.

“Clients are shell-shocked and not panicking as much as not even knowing what hit them,” she said. “As everyone tries to adapt to a new normal and working remotely, technology companies will benefit. Maybe working remotely will be so efficient that we continue this virtual work world long after this crisis passes.”

On a practical level, even as both the virus and the market contagion unfold, watching traditional market data is prudent strategy.

“What you are starting to see is that multiples are starting to reprice, and you have to think about where earnings are going to come in and where you see the S&P 500 is going to settle at before we say, ‘Things are starting to look better now,’” said Victoria Greene, founding partner and portfolio manager at G Squared Private Wealth.

“People are confusing the panic they feel in their personal lives with their financial lives … but that should not derail your investment policy and long-term goals,” Ms. Greene said.

Vance Barse, founder of Your Dedicated Fiduciary, said even those who have a perspective on prior market corrections and financial unrest will have to acknowledge the reality of wading into uncharted territory.

“I would assert that once the COVID fears subside and people leave their homes and start spending money again, this too shall pass,” he said. “But in the meantime, we’re living in world of unknowns. This is a global pandemic and people are being told to stay indoors, and we haven’t had a situation like this before.”

[More: Steering your firm through the crisis]