In the financial markets, it’s often uncertainty and fear of a specific even that’s more impactful than the occurrence itself, and these have been borne out through various geopolitical conflicts. Take for example Brexit and the election of Donald Trump as U.S. President.
While an exception may have to be made to this rule in the wake of the coronavirus outbreak there’s no doubt that the initial volatility caused by the mere prospect of a global pandemic caused record breaking drops to global indices during Q1 2020.
We’ll explore some of these losses, while asking how the market is now shaping up as countries begin to ease lockdown restrictions and attempt to restore the economic norm.
The Course of the Markets in Q1
If you cast your minds back to February 12th, you’ll remember that the Dow Jones, NASDAQ and the S&P 500 all finished at record highs, while the latter two indices also went on to record a subsequent high on February 19th.
This trend quickly began to change, however, once Covid-19 was confirmed as a global pandemic and the number of recorded cases worldwide began to spiral.
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Between the 24th and 28th February, all of the aforementioned indices incurred their biggest monthly crash since the 2008 financial crisis, while they embarked on a period of considerable volatility
On March 12th, the prestigious Dow Jones reported a record 2,353-point drop, which at the time was the worst 24-hour decline in the market’s history. Incredibly, this record lasted for less than four days, as a staggering 2,997.10 drop followed on March 16th.
Of course, the extent of these declines can be partially explained by the Dow’s relatively high price at the time of the first drop, when the market had closed at 20,188.52 during the previous evening.
Overall, the second, record-breaking drop caused the Dow to shelve almost 13% of its overall value, which was the worst daily performance in sheer percentage terms since the infamous Black Monday crash in 1987.
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What About the Current Outlook and the Near-Term Future?
Fortunately, the markets and major indexes have largely rebounded from these record lows, with the Dow now operating around the 24,000 mark according to Tickmill and showcasing incremental growth on a daily basis.
Both the NASDAQ and S&P 500 indices have also increased incrementally during the first week in May, as numerous countries continue to emerge from lockdown and move towards kick-starting their individual economies.
However, the medium and longer-term outlook for these markets remains sketchy at best, and there are various reasons for this.
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Firstly, countries are risking a second wave of infections as they emerge from lockdown and ease social distancing measures, which is continuing to create uncertainty and the threat of further steps being taken in the summer.
Secondly, the socio-economic impact of Covid-19 is likely to be pronounced and sustained, and this will have a direct effect on company performance and the value of stocks and shares.
With this in mind, it’s little wonder that S&P 500 cash spending is expected to plunge by a record 33% in 2020, as firms scramble to shore-up balance sheets and cope with the significant financial losses that they’ve incurred.
While this eventuality won’t have as seismic an impact as the outbreak itself, the fallout could well be sustained and leave investors adopting an increasingly risk-averse approach as 2020 plays out.