The past few weeks have been crazy, and expensive! Governments are spending Billions and investors have lost Trillions. This is Part 1 of 2, as I want to get this out there. So quickly....
Today a number of Asian stock markets entered a Bear Market. At time of writing, European markets are down anywhere between -4.9% and -11.8% today alone. US futures are down -4.89%. Inevitably, American stock markets will open lower and probably close lower again. The latest part of the current rollercoaster is thanks to the decision by Saudi Arabia to over supply the world with oil following Russia's refusal to reduce their own production. Oil prices fell roughly 1/3 overnight. Having range traded between $50 and $60 per barrel for the past year or so, NYMEX WTI Crude fell below $28 before "settling" for the past couple of hours at $32 or so.
Meanwhile the US Treasury 10 year yield, which many thought couldn't go any longer (years ago!) continued to set record lows falling to 0.41%. Yes, lend a broke Government money for 10 years and get 0.41% per annum for your generosity. Crazy? I don't know what's crazy or not any more. US stocks have on average a dividend yield of more than 2%, yet share prices are in free fall. Volatility is through the roof. Risk management is unfathomable. Wall Street, and of course 'Main Street', are clueless.
Markets are acting in an irrational way. Just markets? Do I need to mention the shortages of toilet paper? Yes, it seems the biggest virus is not COVID-19 itself, but the complete loss of clarity of sight by most of the world resulting from it.
Whilst the global economy was stuttering forward before all this, it was still going forwards nonetheless. Will it be negatively impacted due to this virus, yes of course, but then we knew that in the carnage a couple of weeks ago. The last week of February 2020 was the worst week for the S&P 500 since the 2008 Global Financial Crisis (GFC). The correction that was caused in the Dow Jones Index (DJI) was the fastest since World War Two (WWII). COVID-19 vs GFC vs WWII. Come on everyone! I think we've seen too many Hollywood films! Now, not to trivialise it, it is indeed a tragic occurrence and people have died, and sadly yet more will. However, things do need to be kept in perspective. There are c. 110,000 cases so far, with about 3,850 people who have died as a result. According to the World Health Organization (WHO) there were 56.9 million deaths across the globe in 2016. Diabetes killed 1.6 million. Put that can of coke down! Deaths from respiratory infections for that year were over 3 million. I know the year is not over yet. But, also for COVID-19, it seems the vast majority of deaths are actually seen in the very elderly or those with existing chronic health conditions. Again, not to belittle it, but we all need to put things in perspective. PS - toilet paper doesn't save you from it (and neither actually will surgical masks).
Anyway, equity markets West of the North Atlantic Ocean are about to open. I don't want to miss the show (nor yet another buying opportunity). Investors won't be worried, for an investor is in it with surplus cash for the long term. And in the long term stock markets, since their very beginning, have always gone up. This time will be no different.
This isn't over yet. The market, economic, political and media rollercoaster will surely continue. As will this article. Look out for a more detailed and economically in depth 'Part 2'.
As always, these are my own opinions and should not be considered advice in any way. For more information, questions or comments please do message me on LinkedIn or email me at ianpryor@ippfa.com