Why did coronavirus plunge stocks into a bear market so fast?

Dow closes its bear market Dow closes its bear market

COVID-19 fueled further selling in stocks, dragging the Dow more than 20% from it speaks in February

Source: Refinitiv, CNN

The news about Coronavirus (COVID-19) has been relentless. When COVID-19 was declared a pandemic, stocks entered a bear market. This came as a shock; shares of airlines plunged and energy and industrial stocks also declined sharply. In the last two months, prices have fallen to over 20% from the peak. Stock prices reflect expectations of future profits, and the virus is a demeaning economic activity and reducing profits.  A report from the New York Times shows that China, for instance, would fall 50% compared to last year. This means that there will be a sharp decline in the GDP in the coming few months.

COVID-19 was a Chinese syndrome until it started attacking Europe and the US global markets. The stocks have fallen to over 8% and interest rates have plummeted as investors run perceived havens of safety. The US bonds are now approaching zero interests. Mega companies that have led the market such as Amazon, Apple, Google and Microsoft are not an exception. They have experienced a drop of over 20% in just a short time. Apple, for instance, announced that it would not meet its forecasts for the current quarter because the supply chain is disrupted in China. This is because the company has its products assembled in China.

The pandemic spread so fast raising the specter of lower demand as well as reduced supply. Semiconductor companies have lost 30%. high-flying software companies as and ServiceNow and Salesforce have experienced major declines as well. The wave of corporate conference cancellations, directives to work from home, travel restrictions and the almost complete cessation of global corporate activity will put a real cost on the bottom line of businesses. With different learning institutions shutting down and restrictions to keep social distance, the ripples of these effects will expand even more.  Consumer’s expenditure drives so much of our economic activity, and it is a clear indication that it is about to slow drastically.

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Travel companies and other companies are escalating their efforts to protect employees by banning all nonessential travel. Walmart said on Thursday that its employees could travel internationally only for “business-critical trips” and that it was restricting their travel to conferences and trade shows within the United States. The airline stokes in the US, for example, have crashed over a month. United Airlines reported that their bookings are down below 70%. Most other airline stocks are off more than 40% from their peak in February. This is because the government is suspending all flights in efforts to help fight the pandemic.

According to an outlook on the global economy by economists at the Institute of International Finance, 2020 forecast for growth, the growth for the United States rates to 1.3% that in China is 4%. The revisions could take global growth to 1%

The speed of developments related to COVID-19 is shocking. It is having an unprecedented impact around the globe on businesses, economies and people. This is going to stress bond markets that have loaned companies trillions of dollars on the expectations of business and risk as usual when this period does not go back to normal.

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5 things investors need to know

The coronavirus impact on the stock market is much different from previous pandemics. It is important to be concerned and to pay attention as well as to consider the most extreme moves. All the risks you factored as an investor into your original investment decisions when they become amplified in a crisis such as this, definitely there is an unanticipated risk emerge. All you can think about is, how do you invest when the stock market is crashing?

It is at this period of time when stocks tumble that investors are likely to experience panic selling and buying back when they have recovered. However, this is a recipe for a bad performance.  When the stoke market tanks, investors should remain calm. At this time, investors could panic and start selling frantically. One should even not log into their investment account because stocks will increase in value over time.

The first thing that investors should know is that this is not the best time for an investment decision. Instead, they should take care of is the money at hand. It is usually difficult to invest in a falling stock market. You should draw if you have no cash and stay put if you already got money in the bank.

Secondly, it is also important to know that not all businesses can be shut down. Many have tasks that require the workforce to turn up and be there to finish assigned tasks. Emergency services have to work regardless of the ongoing situation.

Thirdly, do not preoccupy the mind with the declining value of your investment. This is not the time to declaim that you saw it coming. The most important thing right now is to understand the difference between stock and flow; wealth and income. The wealth you have accumulated from your investment might have eroded in value but it would be better if you got where you earn from even during shutdowns. You can evaluate your extra income to survive for this brief period.

As an investor, you should find the positivity in you to be the person the situation demands. Find some innovative ways to keep yourself engaged and productive as well until when the situation goes back to normal.

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The last thing an investor should know is that the problem is real hence the need to drop the denial. Even though the world has not yet found a solution, you should not panic. Such a pandemic call for action and you need to drop tactical thinking and prepare.

In conclusion, COVID-19 pandemic will push the global economy into recession. This will call for everyone to brace for an intense economic contraction everywhere with little response by governments worldwide. The question that is yet to be answered here, of course, is how long the disruptions last and how deep they go. In as much as businesses are reducing team activity, they can still be managed from home.

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