Dow futures rose 138 points this morning as investors attempt to create a bounce in the market, coming off the worst one day drop on the Dow Jones and S&P 500 in 2 years. Unfortunately, the lack of clarity surrounding the Coronavirus is manifesting a downturn in the markets. The state of the markets is worrying ; with investors in a state of “panic” and total uncertainty on how the Coronavirus will play out. BMO Capital markets believe that although some companies have already been affected by the virus, it is very unlikley that this will cause an earnings deterioration across the market. They stated that over the long run, the virus does not have any fundamental influence on companies including the long term revenue forecasts. However this is not the general consensus amongst most market proffesionals. Succesfull strategists Ed Yardeni said –
“It has the potential to turn into one of the more severe corrections of the current bull market,”
He goes on to mention that the Coronavirus has the influence to drive the economy into a recession. This may be seen as an extreme opinion, however many experts including Warren Buffet believe that the market is becoming more fragile. With the volume of investors acting upon news almost instantaneously, it is creating an unstable and brittle system that is hard to predict.
From my research, I do not believe the Coronavirus will hold any long term impact on market. However, the market will likely continue to fall until positive news on the virus is released, either regarding a vaccine or a cure. This news will cause a shift in a bull market, which may be the reason some investors are purchasing stocks now.
Does it have the power to push the US into recession?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
It remains unlikely, with such a short lifespan the virus offers little threat to the markets over the long run. The virus should not be ignored, however constant fear of a global pandemic is seriously damaging the Global Markets. The most interesting aspect of this situation, is that it can be completely controlled by investors. The brittle system we mentioned earlier is manifesting fear into investors minds, which can cause some unwanted outcomes. The only way the virus could push the US into a recession is if the virus began to spread uncontrollably across Asia and the US itself. Once businesses shut down due to manufacturing complications, then that would cause a major economic slowdown. A recession occurs when a country experiences 2 quarters of consecutive -GDP%, which remains unlikely at this point in time.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Tyger Fiztpatrick, Associate of YIG