Coronavirus and Its Impact on Markets

Coronavirus and Its Impact on Markets

February 28, 2020

Recently, coronavirus has been rapidly spreading throughout the world and news headlines. As Chinese authorities are trying to get a grasp on this virus, investors around the world are becoming skeptical about what sort of impact the coronavirus will have on global economic growth and specific financial markets. Many question marks are still visible – What is the impact? What is the extent of this outbreak? How long will the virus and its impacts last? 

Since the coronavirus appeared, there has been an initial drag in China and other emerging markets in Asia.  Two Capital Group economic/investment experts, who are in China, provided their perspectives on the outbreak. One stated that he believes that the numbers of infected individuals are significantly underestimated, and the other declared that depending on the duration of this virus contamination, the world (especially China) should anticipate sizable declines in consumer spending and manufacturing activity for the time being. 

As indicated previously, neighboring markets to China (those that rely on Chinese spending, tourism, and other revenue streams) will experience the largest economic impact; however, the U.S. markets are certainly reacting. Many investors are speculative about the outbreak having a spillover effect on American companies that conduct business in China, such as Starbucks, Apple, and other name brands. In addition, many U.S.-based airlines have started canceling flights to China. In the near-term, the U.S. economy looks more uncertain than usual, but the long-term market has historically proven itself to be resilient.

From a more optimistic outlook, many economists are projecting a V-shaped global economic recovery, meaning that the first half of 2020 will have slower growth, which will be followed by a significant incline in the second two quarters. Many U.S.-based professionals believe the U.S. economy will follow the same course. Many global economists and investors are analyzing and comparing past date patterns as a “mock template” to what is assumed to occur in the coming weeks and months. As with past outbreaks (see above the SARS and Swine flu epidemics), markets are expected to power through it and stabilize over the long term. 

As Christopher Davis, a senior manager research analyst at Morningstar, stated in November 2018, “Though tempting, trying to time the market is a loser’s game. $10,000 continuously invested in the market over the past 20 years grew to more than $48,000. If you missed just the best 30 days, your investment was reduced to $9,900.” At Financial Plans & Strategies, we work to help you achieve your goals and focus on a long-term outlook. For further reading please see the below article from the Capital Group.