Today’s financial market is largely defined by the effects of the novel coronavirus or COVID-19. The coronavirus has caused significant drops in the value of the main stock exchanges around the world. Sell-off controls have been triggered, stopping trading for brief periods in some cases.
Understandably, many investors are afraid to buy anything in this market. However, it would be smart to look at this period of depressed prices as an opportunity for growth rather than as a serious blow to your portfolio.
Market Traders Institute shows how the markets are being affected by the coronavirus and what steps are necessary to get the world economy back on its feet.
Economic Impact of the Coronavirus
The economic impact of the coronavirus came on quickly. Wuhan, China is part of the nation’s economic engine, and when work and production were shuttered in this area, the global economy began to feel the pinch. Workers all over China were asked to avoid travel, staying where they were after the Lunar New Year holiday.
This extended holiday may have helped China avoid further spread of the coronavirus, but it has had a devastating impact on the local economic situation in the country. People are not able to get to work or school. Consumers are not making purchases other than necessary food and household items. Manufacturing and trade have been nearly brought to a halt.
This difficulty in China has had a ripple effect throughout the world. Chinese companies are one of the top suppliers to American companies. Many goods were not able to be shipped between countries due to the coronavirus. This caused supply chain disruptions.
The Impact Moves Outside China
The disease began to spread globally in January and February of 2020. South Korea was one of the first countries outside China to experience severe impacts from the disease. Later, Italy, Iran, and the United States experienced disruption as well.
Italy’s northern Lombardy region is the engine of the nation’s economy, and that part of the country was put under a virus lockdown, with the rest of the nation following suit soon after. This has prevented important economic activity from taking place.
In the United States, several different industries have been affected by the coronavirus. Travel and tourism have experienced the most serious effects so far. People are cutting out all but the most necessary trips, leaving airlines with unsold seats and hotels empty. The fear of catching the coronavirus has had a chilling effect on this industry.
The Fed Rate Cut
In early March, 2020, the Federal Reserve Bank instituted a rate cut of 0.5%. This brought the lower rate down to 1.25%. Just days later, an emergency cut slashed the rate to zero. This may cut into the profits of banks and financial firms, but it should have the beneficial effect of encouraging investment in distressed areas of the economy.
The Fed’s cut was later followed by other countries, including Great Britain. The global nature of the coronavirus means that the countries’ interconnected economies must be treated as one. Understanding how the world economy is put together will help individual investors make a strong showing in the markets.
Bargain-hunting investors can be an important source of economic stimulus. When these investors are encouraged with a rate cut and lowering of stock prices, they will help to bring prices back up again. Analysts do not believe that the world economy is currently bearish, but they warn that the market could turn that way if the impact of the coronavirus is not contained in the next few months.
Moving to a buy-low, sell-high strategy is one of the most basic ways that investors make money. If they are willing to wait out some of the poor market conditions, they may be able to buy at the lowest point -or close to it- and watch their money grow as the economy recovers.
The Protective Effect of Gold
In uncertain economic times, investors commonly turn to solid investments like gold. Gold may be a good way to preserve wealth, but it may not always be as important as it is today. Gold mining methods have improved, meaning that there is more supply than there was in the past. This supply-side increase could possibly have the effect of reducing demand. Gold is still in demand in high-tech manufacturing and in jewelry, but this could change in the future.
For long-term stable investments in the wake of the coronavirus, investors may want to look elsewhere than gold.
Understanding the Impact of the Coronavirus
The coronavirus has already had a vast impact on the world economy. Causing disruption in several industries, especially travel, tourism, and manufacturing, the coronavirus has caused global GDPs to drop and the value of stock markets to go down.
Market Traders Institute provides guidance for investors who want to take advantage of the growth opportunity presented by the coronavirus. Their activities may be part of the economy’s recovery from the coronavirus.