Markets started tumbling last week, as the coronavirus quickly spread outside China to Europe, Iran, South Korea and the US. Investors have experienced highly volatile market conditions. Indices in Wall Street recorded their biggest daily drop since Black Monday, October 19th of 1987. The only question is whether or not the fall is over.
With challenging trading environments lie great investment opportunities
These trading conditions can be challenging for investors, especially newbies, as they often face strong losses.
In addition, they also need to spend more time and energy reducing the impact of their psychological biases on their trading decisions, as these biases are even more important in times of higher market stress.
On the other hand, this level of volatility is used by many investors to take advantage of falling markets, especially those trading CFDs and other derivatives. There are also many stocks to buy amid coronavirus fears like stocks that will benefit from people staying at home or defensive stocks like grocery stocks.
The impact of the coronavirus could affect global growth
While the coronavirus is spreading around the world, many central banks and governments decided to offer accommodative monetary policies and stimulus packages to support their economies.
This week-end, the Fed decided to vote for another emergency rate cut that brings the target range for the federal funds rate to 1/2 to 3/4 percent. In addition, the American central bank decided to implement a set of actions to avoid a liquidity crisis and support the credit needs of households as well as businesses.
‘The Federal Reserve announced measures related to the discount window, intraday credit, bank capital and liquidity buffers, reserve requirements, and – in coordination with other central banks – the U.S. dollar liquidity swap line arrangements’ declares the FOMC in its latest statement.
Of course, the Fed isn’t the only central bank that’s acted to stave off economic hardship.
‘The US decision triggered emergency policy easings by central banks in New Zealand, Japan and South Korea, with Australia also joining with a liquidity injection in a coordinated move aimed at stabilizing confidence as the pandemic threatened a global recession’ declares Reuters.
For some analysts, the situation could even potentially trigger a recession, depending on how long the world will be in partial (or total) lockdown to combat the coronavirus epidemic. The American bank, Goldman Sachs, lowered its growth forecast for the American economy. Its GDP forecast went from 0.7% to 0% for the first quarter.
‘We expect US economic activity to contract sharply in the remainder of March and throughout April as virus fears lead consumers and businesses to continue to cut back on spending such as travel, entertainment, and restaurant meals,’ Jan Hatzius, Goldman’s chief economist, sent to clients on Sunday 14th.
‘Even with monetary and fiscal policy turning sharply further toward stimulus, these shutdowns and rising public anxiety about the virus are likely to lead to a sharp deterioration in economic activity in the rest of March and throughout April,” he added.
Higher market volatility ahead
Global markets have fallen sharply due of increasing fears that the economic consequences of the coronavirus could be even more negative than expected, even after central bank and government efforts to stop the virus to spread and support their economies.
All the decisions made to support economies do not help market participants, triggering high volatility trading conditions. Markets are falling so strongly that measures around the world have been activated to temporarily halt trading activities. These circuit breakers, implemented after the crash of 1987, have been activated three times in six days for Wall Street indices so far.