Inside the Mind of an Investor

06 March 2020

    It’s interesting to take a look at how the Coronavirus outbreak came to influence the markets, not at all and then entirely! For weeks, investors have had peace of mind, with S&P 500 having demonstrated its record high on Wednesday, the 19th of February 2020. The tune changed rapidly, as growing outbreaks in Europe and threats in the US have been communicated, signalling the threat of an impact on the global economy.

     

    The recent further market sell followed confirmation of the first case of the virus’ community transmission in the US (California), which seeded increased market stress, overpowering US President Donald Trump’s statements as to the threat of virus to American people being very low. 

     

    Uncertainty has further been fueled by the fact that, despite urging people not to panic, Trump did mention other nations being potentially “cut off” from US travel, as the epidemic has now gone strong in South Korea and Italy. Additionally, the World Health Organization has confirmed that new cases of Covid-19 outside China have now exceeded those within the country for the very first time.

     

    In light of the continuing sell-off, it’s highly likely that the Fed will have to step in to save the day with cuts, despite its plan to keep the rates where they are for the utmost of the year. A to-be victory for Donald Trump. Truth be told, it truly is a challenge to avoid financial panic, as even the ex-Fed Chair, Janet Yellen, admits the possibility of the coronavirus shrinking the US economy to point of recession.

     

    Be that as it may, current market trends seem to show that investors have a strong calling for long-end interest products. As government bond yields hit record low - the demand for the haven asset couldn’t be more apparent. Gold too, holds its usual strong safe-haven position. As for stocks, the combination of high stock prices with lower expected earnings lead to stocks appearing overpriced, and even slight changes in profit expectations appear to be leading to major price swings.

     

    Regardless, all we can do now is stay tuned and watch the situation unfold, while keeping our risk management practices at the forefront!

     

    Information Sources:

    https://www.bbc.com/news/business-51624003

    https://www.nytimes.com/2020/02/25/business/stock-markets-covid-19.html

    https://www.investors.com/research/futures/oil-falls-as-spreading-coronavirus-convulses-markets-worldwide/

    https://www.marketwatch.com/story/why-the-coronavirus-outbreak-is-delivering-a-fresh-dose-of-recession-fear-to-the-stock-market-2020-02-22

    https://www.ft.com/content/9586d822-58fe-11ea-a528-dd0f971febbc

     

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