Market Update

This week, global stock markets continued their downward trend due to increased uncertainty surrounding the ongoing coronavirus crisis.
In the United States, the S&P 500 Index plummeted by almost 15%, and the Dow Jones experienced a decline of over 17%. Since its peak on February 12, 2020, the Dow has now lost 35.12%, completely erasing the gains made during Donald Trump’s presidency.
Governments and central banks worldwide escalated their efforts to protect the economy from the outbreak and ensuing lockdowns. For example, the Bank of England reinstated Quantitative Easing (QE) and implemented an emergency interest rate cut in the UK.
Despite these measures, company valuations remained extremely low. This disparity between fundamentals, valuations, and market prices can be advantageous for patient, long-term investors. Historically, markets have recovered from various negative events, and this time is likely to be no different.
Although short-term market volatility is expected to persist, it is crucial to resist impulsive reactions and maintain a long-term perspective. Market history shows that periods of sharp decline, such as the crashes in 1987 and 1997, often appear as minor blips on long-term charts in hindsight.
Equity markets tend to overreact to uncertainty and fear, as seen during the global financial crisis in 2008/2009. However, a diversified portfolio of resilient companies and funds can weather such crises. Confidence and higher share prices may return swiftly with positive news, although the timing of a potential rally is unpredictable.
Looking ahead, key economic indicators will provide insights into the impact of the coronavirus, including US jobless claims and various economic data in the US, Eurozone, and UK.
Currently, the FTSE-100 is down by 5% at 4,930 points, reflecting a challenging day in the markets. The US equity market is expected to open lower after a stimulus package was blocked by Democrats. Additionally, alarming predictions have been made, including a potential 30% unemployment rate in the US and a 30% contraction in US Q2 GDP. Despite these concerns, there is optimism that a new, larger stimulus plan will be agreed upon, potentially stabilizing the markets.
While the economic damage from the global standstill remains uncertain, swift and substantial responses from governments and central banks are anticipated to continue. This proactive approach reinforces the belief that economic growth will recover swiftly, minimizing long-term damage.