Coronavirus Market Impact
As coronavirus continues to cause dramatic market movements, trade with IG on our award-winning platform.1
Discover the impact the disease is having on financial markets and how we can help you to navigate the volatility.
How is the Coronavirus Impacting Financial Markets?
The coronavirus outbreak has caused far-reaching social and economic disruption, and markets are reeling as a result.
Economies around the globe could suffer big hits to GDP growth, as the prospect of millions of people being off work, and thousands of restaurants and other businesses closing, alters supply and demand. Global financial markets are experiencing extreme volatility as a result, as investors grapple with the multitude of effects the virus could have.
To highlight the effect that coronavirus is having on global markets, we’ve taken a look at the way the S&P 500 – a common benchmark for global economic health – has reacted compared to other market crashes.
- The first chart to the right shows that the initial few days of coronavirus volatility had a much more rapid impact than the other crashes
- The second chart indicates that the effects of coronavirus are likely to be in their infancy
- From the final chart, we can see that it has taken the stock market varying periods of time to recover from each crash – so we could see the effects of coronavirus last up to a year or much longer
Comparing the impact of coronavirus and historical crashes on the S&P 500
- Initial impact
- What happened next
Why Trade Market Volatility with IG?
Coronavirus and Market Volatility
- What's happening now
- What could be to come
- What's happened already
Although there is no way to know for sure what the lasting effects of Covid-19 could be on financial markets, we have seen a clear trajectory for other European nations and US as their cases rise without any lockdown.
While the economic measures to support businesses and individuals throughout this crisis may lessen the impact, it could only be a matter of time before there are further lockdowns in other nations. This could have a huge impact on travel, tourism and consumption.
In this environment, assets focused on global growth will be out of favour. This means equities, most commodities and high-yield bonds. Capital preservation and safe yields are the key here, so the dollar and government bonds will be in high demand, while safer equities – such as utilities – come into their own.
At times like this, markets tend to trade on herd sentiment and news flow. With that in mind, it’s important to keep an eye on the latest news and ensure you have a suitable risk management strategy in place.
Take a look at IG analyst Josh Mahony’s summaries of recent market activity below.
While coronavirus volatility started in mid-February, it came to a head on what is being called the new ‘Black Monday’ – 9 March 2020. The day saw oil prices fall and global stock markets collapse in one of the largest single-day declines since the financial crisis of 2007-2009.
Travel firms have been at the sharp end of the sell-off, as lockdowns and quarantining have caused a slump in demand for flights, cruises and hotel rooms. Oil stocks have also suffered – hit by lower demand for travel and the oil price war between Russia and Saudi Arabia.
Stock indices have experienced significant price fluctuations in response to the ongoing situation. On Black Monday, US indices hit the limit down of 7%, causing the NYSE to halt trading.
The automatic stabilisers were brought back into effect on Tuesday, with a limit up scenario, but Thursday saw a limit down again. This huge volatility is likely to be here to stay as the economic fallout of this global pandemic plays out.
Gold has not been the hedge many thought it would be, falling as investors sell their holdings to buy the dollar, and dropping further as markets worry that inflation will be weak for months to come.
The oil price war also saw record increases in the amount of oil supplied, just as demand looks set to decrease – ensuring crude prices remain volatile.
The Federal Reserve quickly closed the gap in interest rates on the rest of the global world, sparking huge declines for the dollar. While the flight to safe-haven assets caused the Japanese yen to soar into multi-year highs. However, the Bank of Japan is standing by with tools to use in a bid to stem the flow of money into the yen.
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