What is a coronavirus?
Coronaviruses are a large family of viruses which may cause illness in animals or humans. In humans, several coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The most recently discovered coronavirus causes the infectious coronavirus disease COVID-19. This new virus and disease were unknown before the outbreak began in Wuhan, China, in December 2019.
COVID-19 is likely to be transmitted in droplets from coughing or sneezes, and the virus has a 2-14-day incubation period. That means people could be infectious for quite a while before symptoms like fever, cough, or shortness of breath emerge.
How is it affecting the markets?
The COVID-19 outbreak has caused turmoil in the stock market as fears around the virus spread across the global economy. Since the outbreak, various records have been broken, including the biggest single-day point drop in the Dow and the biggest weekly decline since 2008. The main reason behind the plunge is uncertainty. Markets don’t like uncertainty because it makes it hard for businesses to plan.
Investors have been selling their stocks to get their money out of the market, or into “safer” investments, wiping out trillions of dollars from the financial markets in the process.
Not only have corporate profits and stocks been affected. Most international indices have entered bear market territory (declining at least 20% from the 52-week high). While oil prices plummeted as travel has been cut, factories across China closed, and global manufacturing and deliveries halted.
What are analysts saying?
What’s going to happen next? No one knows. As previously mentioned, a major reason for the market’s volatility is uncertainty.
Stock prices reflect expectations of future profits, and investors see the virus dampening economic activity and reducing profits. Until the extent of the decline is clearer, the natural reaction will be to sell. On the flip side, and if history is any indication, markets will almost certainly rebound before the world stabilises. That happened in 2009, when markets reached their nadir in early March, long before the global economic recovery was certain. And it happened in October 2002, long before economic activity picked up after the tech bubble and 9/11 recession.
Therefore, and although investors should be selective about the stocks they pick during these stormy times, many analysts feel that the coronavirus outbreak and market selloff aren’t reasons to completely stop investing in companies known to be resilient in times of uncertainty and volatility, for example, Apple and Microsoft.
What you should be aware of when considering trading
It can become easy to panic and sell everything when the markets crash, especially the first time you see your investments drop. Reacting with your heart and not your mind is a schoolboy error known as ‘emotional investing‘. As challenging as it is, try your best to stay detached and stick to your long-term strategy to avoid emotional investing decisions that could lock in losses.
Over time the market has continued to rise despite economic woes, terrorism, and countless other calamities. What seems like a massive global catastrophe one day may be remembered as nothing more than a blip on the radar screen a few years down the road.
Having said that, there’s one golden rule that you should always keep in mind and observe when you’re investing: Never invest money that you can’t afford to lose. Investing is important, but so is eating and keeping a roof over your head.