The past couple of weeks have been volatile for the stock market. Behind this volatility is the global spread of coronavirus epidemic that has over 113,000 confirmed cases and 4000 reported deaths, according to the latest update.
What makes this disease so scary is that it develops between one to fifteen days. This means that the virus carrier would be transmitting this disease to anyone without realizing it.
How coronavirus triggered stock market’s worst nightmare
With the lack of authentic cure, there has been a global panic for health and safety. However, Wall Street of America is suffering another panic attack as well.
On Monday, 9th March, stock market announced that it has seen its worse day since 2008.
S&P 500 dropped 7% which triggered a circuit breaker effect on stock market where there’s a high chance of panic-selling but authorities like US Security and Exchange (SEC) Commission try to stop investors from from panic-selling but how can they stop anxiety that has been growing rapidly in the stock market.
According to this host at MSNBC, the corporations get a chance to bail out because of 15 minutes halt. This has infuriated many people because the stock market cared more about companies rather than investors.
This user clearly explains the game markets play with people. Someone went ahead and directly accused stock market for double standards.
This user says that stock market applies socialism for corporations but when it comes to investors, the beloved capitalism of US is activated. Number of people on the thread can be seen holding President Trump responsible.
This allows rich people to pull out and then buy in again with cheap rates. Only ones suffering are the people who work at Wall Street. On the other hand, people working with Bitcoin also did not lose as much as stock investors did.
The trading was resumed after corporations and rich people had their 15 minutes of fame.
Major price cuts due to stock market concerns
The biggest slump in energy stocks was felt across the board. As soon as the market plummeted, Oil prices took the biggest hit and brought down by 30%. This further raises the concern due to competition between two major oil producing countries; Saudi Arabia and Russia. These two clashing giants are sending shockwaves through the entire energy market.
Fears surrounding the epidemic were already squeezing the world economy gradually. Then came the infamous meeting of OPEC and non-member countries.
They had to make a simple agreement on cutting the production of 1.5 million barrels a day which is 1.5% of global oil production. The Russians however, refused to agree, and even refused to renew previous production cuts that are expiring at the end of this month. Hence, Saudis replied by telling customers that they were going to upgrade production and slash prices at the same time for Asian customers.
This sharp decline in oil prices generated panic-selling in the entire energy sector. When OPEC and friends failed to decide how much production would be restricted, oil demand is forecasted to decrease in 2020 for the first time in a decade. . According to media reports, Crude Oil (Nymex) dropped down 31% and down to $27.34 a barrel on Monday, the 9th. Whereas, today, on the 10th, it was only able to rise by $34.05.
The Energy sector in S&P 500 fell 17% on Monday, the 9th, hitting its lowest level since 2004. After a global downward spiral launched by constant panic over the coronavirus outbreak and an oil price war started by Saudi Arabia and Russia.
It’s not the disease’s fault, it is this unpredictability that causes people to panic. The reason is because nobody is certain how global markets will be affected now. The international travel is already in jeopardy, now domestic travel will be affected too.
Also in response to the outbreak, the US Federal Reserve cut interest rates by 0.5 percent. This is the biggest emergency rate cut since the Great Recession (2000-2010). President Trump was reportedly applying a lot of pressure to achieve these interest rate cuts. It is certain that interest rate cuts won’t cut the rate of virus infection nor fix the supply chain network but it will somehow restore the economic activity.
Moreover, President Trump is also supporting tax cuts which he believes that congress will propose soon. It is doubtful that it would address the issue of broken supply chains and empty shelves, and the people who are confined to walls these days.
How investors should cope with the after effects
The first and foremost step is to navigate the panic caused by coronavirus appropriately. Investors are highly suggested to remain calm and invested in the stock market. Do not hesitate to make abrupt corrections as a wake-up call to review your initial investment propositions. However, in case of lower rate in market, it is never a good idea to panic-sell and hope everything will be better. There is no place for hope in stock market.
Investors usually forget that the best days of stock market are found in the close range of its worst days. For example, The Dow’s Industrial Average gained 2 largest points in history during its worst single-day decline in over 100 years.
An annual report issued by J.P. Morgan also yields similar results. Analysts found that S&P 500 raised between 50 – 60% in a single-day within two weeks of worst performance. If an investors backs out at this moment, he or she will fail to generate long-term wealth by potentially missing out on such big rallies. As a result, the rich will get richer and the poor will get poorer.
Secondly, if the stock is bought during the corrections in S&P 500 then that person will be totally in the green zone.
It is because the estimate of stocks are way higher than the haul so it’s a good idea to use limit orders during heightened volatility. There are imbalances around the opening and closing bell of the market that can lead to wild price swings in individual stocks. Limit orders will help investors to set their own buying and selling rules.
As predicting stock market on a day to day basis during coronavirus epidemic is virtually impossible so it is suggested to avoid using margin. It can leverage some of your gains if you are right but if you are wrong, the loss can intensify surprisingly.
Lastly, investors must keep focused on long term investment because short-term moves are unpredictable right now. Wanting to earn in a matter of days or weeks is similar to rolling the dice. It will take time for businesses to implement new growth strategies. So should your investment thesis.
The desired wealth begins to appear much later in the life of an investor. As noted by basically all the investment researchers that Warren Buffett’s 99.7% wealth came after his 52nd birthday.