Coronavirus and the Markets - Here's What You Need to Know
Following weeks of coronavirus headlines detailing the outbreak, markets have responded with increased volatility. Here's what you need to know:
Why are markets moving so much?
Outbreaks like this are hard to predict and the markets do not like uncertainty — particularly after a recent period of record market gains.
As the epidemic spreads beyond China, investors worry that it could slow trade and the global economy.
How long will the volatility last?
It’s tough to say and we can’t predict what markets will do, but this isn’t the first time we’ve dealt with an epidemic. Here are some examples from previous outbreaks:
Chart source: CNBC, Yahoo Finance
The past does not predict the future - but previous outbreaks led to panic selling followed by rallies after the initial outbreak.
However, it is important to keep in mind that epidemics don’t happen in a vacuum; there are always underlying economic conditions and market fundamentals that influence how investors react over the long-term.
Pullbacks and periods of volatility happen regularly, for many reasons.
Whether it is an epidemic, geopolitical crisis, natural disaster, or financial issue, markets react negatively to bad news before they recover.
The best thing you can do is stick to your strategy and avoid emotional decision-making.
Chart Source:
S&P 500 performance during outbreak: https://www.cnbc.com/2020/02/
S&P 500 performance six months after outbreak: Yahoo Finance. 6-month performance between open of first trading day of the month after end of outbreak to adjusted close of final trading day of the sixth month.
SARS: April 1, 2003 - Sept 30, 2003
MERS: Dec 3, 2012 - May 31, 2013
Ebola: March 3, 2014 - Aug 29, 2014
Zika: March 1, 2016 - Aug 31, 2016
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