Coronavirus and the stock market – what you need to know

In recent weeks, the outbreak of the coronavirus has made global headlines. What began as a minor issue in China has now resulted in more than 7,400 deaths worldwide, with ramifications ranging from countrywide lockdowns to the cancellation of major events.

With companies as diverse as easyJet and Diageo posting sales and profit warnings, the spread of Covid-19 has also spooked global stock markets. Between 16th February and 17th March, the FTSE 100 lost around 28% of its value, with 12th March becoming one of the worst trading days in recent memory.

If any of your pensions or investments are tied up in equities, then you may naturally be concerned about the recent market volatility. However, it’s important that short-term issues don’t affect your long-term plans.

1. Think about the long term

In the short term, there is likely to be market volatility. As the coronavirus spreads, governments are being forced to take action to offset weak consumer activity and these measures are likely to support the economy.

Many companies have warned that the virus could lead to a loss of earnings. Travel companies and those involved in the hospitality sector have been particularly hard hit by travel restrictions and the cancellation of conferences, trade fairs, sporting occasions and other events.

While the outbreak of the virus could well lead to a slowdown in the economy, in many ways it is no different from other external factors. Everything from the global financial crisis to the EU referendum have seen markets react negatively in recent years.

If you are investing for the long term, then these risks are built into your plan. If your long-term plans haven’t changed, it’s likely that your strategy doesn’t need to change either.

2. Predicting the market is all but impossible

Trying to time the markets is all but impossible. Even the top financial minds can’t predict when to buy at the bottom of the market and to sell at the top.

Research from JP Morgan looked back over the 20-year period from 1st January 1999 to 31st December 2018. If you missed the top ten best days in the stock market during that period, your overall return would have been cut in half. That’s a significant difference for only ten days over twenty years!

If you’re thinking of making investment decisions based on the spread of the coronavirus, it is worth considering how difficult this is. You have to anticipate or predict:

  • The spread of the virus
  • The government response
  • How people behave
  • How investors react

Even if you know exactly how the epidemic would play out, you would still find it hard to predict the economic implications and how it may affect markets.

3. Previous epidemics have been followed by market recovery

Earlier this year, Charles Schwab produced a report looking at the performance of world stock markets during the period of previous disease outbreaks including Avian Flu, Ebola and SARS.

Their conclusion was simple:

“While there is always the chance that the next outbreak could have greater consequences, the global economy and markets have been relatively immune to the effects of past viral epidemics – even when the global economy was especially vulnerable to a shock.

A short-term dip in stocks tended to be followed by the continuation of the upward trend.”

Get in touch

If you have any questions about your pensions or investments in the light of the coronavirus outbreak, please get in touch. Email or call us on 01189 876655.

Please note:

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.