Will the Markets Stand the Looming Cycles of Financial Crisis of 2020?
In 2017 the investment markets reportedly began on a high note. They were exceptionally good and investors were looking forward to improved financial and business activities. However, it was unknown to them that three years down the line, the stock markets would come down crashing due to unforeseen pandemic.
In the last few months, the world has been engrossed in fear and uncertainties resulting from the coronavirus outbreak. The plague according to data from the World Health Organization has hit close to 110 countries affecting the lives of over 110,000 people. It looks like everything has come to a standstill including economic prospects and social relationships resulting in being one of the major threats to financial markets and the global economy.
Here is the latest from the Wall Street Stock Exchange; the S&P 500 index lost 25% between February 19 and March 12, 2020, while the FTSE 100 index in London lost 28%. The FTSE MIB index in Milan lost 40%. All these explain the volatile situation of the stock markets and the possible beginning of a financial crisis of 2020.
Shockingly, even financial institutions have had to cut their forecasts as a result of the plunging of the bond yields.
What does the presence of COVID-19 mean to the global economy?
With the rapid spread of the virus to Europe and the Middle East, there are rising fears of a recession in the global economy. Many leaders are struggling with; what would it be like and would there be any permanent structural impact?
The world has reported numerous cases of deaths especially in Italy, Spain, China, and South Korea. There have been restricted movements, the lockdown of cities and borders and suspension of businesses. However, according to the head of global macro research at Oxford Economics, Ben May, “From an economic perspective, the key issue is not just the number of cases of COVID-19, but the level of disruption to economies from containment measures.”
The aviation industry, hospitality, manufacturing, and construction are some of the sectors, which have been hit hard. Take for example China, from where the virus originated; manufacturing activities have contracted to a record-low of 40.3. The country’s services industry has also undergone a major shakeup leaving retail stores and restaurants downtrodden.
The energy industry has suffered an equal measure. The demand for oil has lowered as a result of a drop in global economic activity. This was a double hit given a previous disagreement OPEC and its allies regarding production cuts.
China is among many other countries whose service sectors have fallen behind their usual performance. The United States, which hosts the world’s largest consumer market had its services sector contract in February. IHS Markit reported that this was occasioned by reduced business activities from abroad as many customers pulled back consistent placement of orders because of the coronavirus outbreak uncertainty.
But history has shown us that market crashes are both erratic and inevitable
There is no better time to invest other than when you feel ready because the markets have their highs and their lows. In some years there have been high prices which in return increased the investment value. On the other hand market crashes are unpredictable given the previous epidemics such as swine flu, Ebola, dengue fever and measles. Even though their impacts were short-lived, they caused a decline in prices and many investors were left counting losses. Even then, it was a wakeup call for investors to exercise caution on the markets lest they lost their hard-earned investment.
The elderly 75-year old Barton Biggs, a legend of Wall Street says, “As investors, we also always have to be aware of our innate and very human tendency to be fighting the last war… Mr. Market is a manic depressive with huge mood swings, and you should bet against him, not with him, particularly when he is raving.”
What will it cost to get over the tide?
A majority of people still feel there is a need for investing even though the prices are still very unfavorable. However, with all these clouds of anxiety keeping your money safe is likely to be the better option. Read below some of the strategies you can borrow during these uncertain times to pursue money-making opportunities: –
- Federal Bonds
They are risk-free security and with these unreliable times, you could still get securities in return for money on Federal Reserve and the U.S. Treasury. Nonetheless, there is no guarantee of high returns.
- Taking advantage of compound interest
It is very crucial in any investment activity. Hence the strong recommendation to identify and stick to a described investing plan. Also, ensure you are investing in the long term, for example, setting aside a three-to-six months’ salary for a rainy day.
- Gradual contribution
This comes with an advantage. Regular and fixed sum contributions over a long period will give you the opportunity of buying more units at a lower cost and less at high prices. This is regarded as dollar-cost averaging.
No one may tell you this but, despite the panic in the market from the coronavirus, this would probably be the best time to invest. Moreover, if you chose and invest in the right and specific market, you would end doubling your money when the tide is over.
There is no certainty as to when life will go back to normal. However, professional investors should be able to help you take on a few basic rules of investment. They include investing only the money, which you anticipate to use in five to ten years, ensuring you will be able to hold the investment for the same period of five to ten years and buying stocks, which can endure the market crisis.
The goal is to choose your investment wisely, which will deliver expected returns. Think about Warren Buffet. He is one of the billionaires and greatest investors who is always investing in profitable and reliable companies, which he refers to as economic moats.