The spread of COVID-19 virus has disrupted our lives on a historic level. We are trapped in our homes, isolated from the routines that we often resent, but that keep us regulated. Financially it has temporarily brought the economy to a near standstill. This has rattled global markets, led to a historic fall in equities, a rapid increase in fixed income spreads and a coordinated effort by global central banks to slow the momentum of the two. The market sell-off is being driven by fears of a significant global economic slowdown, caused by the COVID-19 virus.
It’s a tight rope public policy officials are walking – the restrictions put in place to control the spread of the virus will have a direct impact on corporate earnings, which is causing the market to struggle in finding the right price for securities. Unfortunately, there is no good precedent for this type of economic threat, which is adding to the severity of the volatility. The closest correlation is the travel shutdown post the September 11th attacks, but that was an incident isolated to the United States.
In short, what we are seeing now is the market reacting to the global effort to stop the spread of the virus and the “Closed for Business” sign appearing in countries throughout the world.
There are a number of different ways to frame this decline, but the most important one is to view it with a wider lens. Looking at a one-month graph of the S&P 500 right now is, to be candid, depressing. However, if you take a few steps back and view the market over time, the correction is less frightening.
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