NEWS WRAP - The Coronavirus Markets Bounce Back
Coronavirus has already had a profound impact on the global economy, with both the S&P 500 and the Dow Jones experiencing dramatic falls during the last week of February, leading to concerns that the pandemic could herald unprecedented levels of economic collapse.
However, following a week in which the S&P 500 lost 11.5% of its value and the Dow fell by 3,583 points, the S&P then rose by around 3% and the Dow recovered 750 points. *
To those with historical perspective, these rebounds are not unexpected: figures show that in the three months following a 10% fall, the S&P 500 averages a 5.6% rise, while the Dow exhibits similar ‘bouncebackability'. *
This is not to say that the markets are over the worst of the coronavirus crisis; if, as seems likely, the pandemic continues apace and eventually becomes endemic in the population, it would be reasonable to expect plenty of panicked moments along the way.
"It's a little too soon for us to call an all-clear just yet," Rob Haworth, a senior investment strategist at US Bank Wealth Management, recently told CNN. "We don't think we're just there yet," he added.*
Inevitably, it is going to take time for the full scale of the coronavirus outbreak to become clear. For example, a number of companies, including Apple (AAPL), Microsoft (MSFT) and Coca-Cola (KO) warned of supply-chain disruptions, while Harvard Business Review predicted that the peak of supply-chain disruption would not occur until mid-March when, it anticipated, thousands of companies would have to halt assembly and manufacturing plants across the U.S. and Europe. It is thought that those companies relying on China for parts and materials will be the hardest hit. **
Meanwhile the Organization for Economic Cooperation said that Covid-19 poses the single largest threat to the global economy since 2009 and could cause markets to halve. ***
Against this background it remains critical that economic policymakers and investors alike remain vigilant. Although Federal Reserve Chairman Jerome Powell has acknowledged the risks of coronavirus and indicated that the central bank would "act as appropriate",* with a cut in interest rates now looking increasingly likely, it is likely that those investors who remain disciplined will see their assets bounce back in the long-term.
"The stock market will recover once investors perceive that the worst is over for the global health crisis and that earnings will start growing along with the global economy," commented Ed Yardeni, president of investment advice firm Yardeni Research. "We think that could happen by mid-year." *
Authoritative cross-border investment advice
Blacktower in the US works to help clients achieve their financial and retirement goals by providing knowledgeable and personalised investment advice. We work across the US and can help you ensure that your retirement planning aligns with your goals. Contact us today for more information.
* https://edition.cnn.com/2020/03/02/investing/dow-jones-coronavirus-stocks/index.html Accessed 04-03-2020
** https://hbr.org/2020/02/how-coronavirus-could-impact-the-global-supply-chain-by-mid-march Accessed 04-03-2020
*** https://www.bbc.co.uk/news/business-51700935 Accessed 04-03-2020