In the midst of the coronavirus crisis, the stock markets in both the US and Europe are bracing for their biggest fall since the financial crisis that took place in 2008.
The double threat of oil price war and global recession brought about by the coronavirus pandemic has caused the trading week to start with panic selling. Thus, it was projected that the FTSE 100 will plunge to 6.3% once the trading starts on Monday and Dow Jones is set to lose 4.9% in the New York Stock Exchange.
The crisis has also resulted in huge losses on Asian markets last Monday because of the public fears that the worldwide economic slowdown will only get worse in the coming days. This was also aggravated by Saudi Arabia’s shocking decision to increase the production of oil in order to drive its competitors out of the market.
Last Monday, the Brent crude oil fell almost 30% at $31.14 last Monday, which is said to be its biggest single fall ever since the Gulf war started in 1991. Experts believe that this will fall even further unless the Russians and Saudis get back to the negotiating table.
Now that the number of deaths resulting from coronavirus has been growing rapidly out of China, everyone is looking at the World’s Central Banks for any sign of economic stimulus in order to offset the effects of the outbreak on the supply chains.
Stocks are expected to sink up to 10% if the government isn’t able to add liquidity to the markets, according to Nigel Green, the CEO, and founder of deVere Group, a financial consultancy.
Some investors might find refuge on multi-asset strategies since boosted diversification on risk could fend off losses that have been observed across the world. Even if the stocks will be able to recover from the drop last Monday, underestimating the effects of coronavirus could lead to drastic consequences to those who are trying to keep the cash in stocks.
Some investors are complacent on the far-reaching effects of coronavirus that still continues to spread at a worrying pace. This could certainly affect the financial market and the complacency of investors could lead to ugly surprises.
The uncertainty as to when the virus will be finally contained has led investors running after assets that are considered a safe haven, such as bonds and gold. These increasing risks in the stock market can serve as an opportunity to purchase more stocks, especially for those who are hoping to score stocks at a lower price.
Thus, Dennis DeBusschere of Evercore ISI, recommends investing in specific stocks and not assets that are sector focused. According to him, if the risk of recession is still low and every government around the world is trying to offset the pandemic with creating a much easier policy, then the weakness of stocks can be used as an opportunity to include high-quality individual companies.
Evercore ISI, a research firm, has maintained that the virus presents a short spell of heightened volatility and not an end of the market’s continued bull run. The swing of the asset prices is going to push the investment cash out of the momentum and growth of stocks. Putting a focus on the companies that have strong fundamentals will surely pay off in the future.
It’s not yet clear as to how the new global phase of the coronavirus pandemic will turn out, however, DeBusschere is confident that the near term is going to end up chaotic.
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The coronavirus pandemic is expected to churn the financial markets in the near future. However, the question here is whether its effect on the global market will put the United States into a recession. Otherwise, the outbreak will be seen as a good opportunity to purchase stocks.
Although we should not underestimate the impact of coronavirus, stock markets believe that we will all emerge triumphantly and the upward tear will continue later in the year. Unfortunately, FDR is correct when he said that the only thing we should be scared about is fear itself.
So, the stock market will continue to move lower for the short term before bottoming and then going back again to an all-time high.
When news reports about the coronavirus outbreak first surfaced, it dragged the US markets until late January, however, the markets resumed the surge to record highs in the coming weeks since investors simply shrugged off the heightened risk.
According to Adam Vettese, an analyst from eToro, a known investment platform, the latest developments on the coronavirus pandemic have prevented investors from maintaining their unconcerned behavior. Investors are now recognizing the fact that coronavirus could end up being a global pandemic. Thus, their “unconcerned” approach is no longer an option.
Even though the recent months have seen a lot of market risks, from the conflicts of the US and Iran and recession warning signs, it is the coronavirus pandemic that has greatly disrupted the stock markets. Vettese believes that if the government won’t be able to contain the outbreak soon, the situation could get worse.
The pandemic has actually joined a number of other factors that could push for the decoupling of western economies out of China. This is according to Vicky Redwood, the senior advisor of Capital Economics.
There were already trade tensions between China and the US as the two countries were mulling the second phase of a trade deal. The major differences in the political systems of both countries are also an added threat that has pushed the two countries apart, Redwood added. The virus itself won’t trigger a huge decoupling between the West and China, however, the virus will be added to the list of the many reasons that could push for de-globalization.
Capital Economics believes that de-globalization might first be evident in public companies. The virus outbreak has already affected some of the world’s biggest firms such as Tesla and Apple, which halted their production. Even though the outbreak will not immediately stop globalization, it has highlighted the vulnerability of the complex supply chains in the world, which could change the way logistics work.
No one knows what’s going to happen in the coming days, which is why the volatility of the stock remains uncertain. Sometimes, it goes up and then it goes down again.
If stocks are easy to predict, then everyone will be rich. For now, the only thing we can do is remain optimistic.