Summary Perspective on the Market Reaction to Coronavirus
It is vital to get some perspective on the market’s recent reaction to the coronavirus outbreak and what that might mean for your investments.
What is happening in the markets? The spread of the coronavirus disease (COVID-19) and the recent growth in new cases outside of China have prompted a sharp market correction in global stock markets. Assets seen as safe havens, such as gold, increased in value. The outbreak has already had a significant effect on China, the world’s second-largest economy with a key role in the global supply chain and a consumer of foreign goods. With the virus continuing to spread, markets were reacting to the outbreak’s expanding potential impact on the global economy.
What should we expect to happen next? In the short to medium term, investment analysts are anticipating weaker economic growth and a decrease in corporate earnings. It will take time for China to resume production and for the disruption to global supply chains to be repaired. The effect on the global economy could be worsened if the number of cases outside China continues to grow.
However, other factors are supporting the markets. China is stimulating its economy with monetary and fiscal policy, and both the U.S. Federal Reserve and Bank of Canada have stepped in with a 0.5 percentage point cut to interest rates. It is likely that other governments and central banks will respond similarly, helping to stabilize the economy and the markets while this disruption runs its course.
What Should Investors Do? Corrections are a natural part of the investment cycle and over the long term, investors who stay invested – rather than trying to time the markets – have been rewarded. This market decline may also represent an opportunity to buy quality companies at attractive prices. I’ve included the chart below to demonstrate the risk of not being invested and missing out on the stock market’s best days, which often come after large declines like we have recently seen.
It is wise to stick with your existing long-term investment plan, which takes into account stock market volatility. Your plan was carefully constructed to reflect your personal objectives and investment time horizon.
Feel free to call me if you have any questions.
SOURCES: The information in this summary is derived from various sources, including CI Investments, Signature Global Asset Management, Cambridge Global Asset Management, CI Multi-Asset Management, Globe and Mail, National Post, Bloomberg Finance L.P., Yahoo Canada Finance, and Trading Economics.