Coronavirus fear and the Stock Market

By PURSUIT of FIRE on in FI/RE - Miscellaneous

It would be difficult to have a finance blog and not talk about the effects the Coronavirus is having on the economy. What started as a virus in China has now spread to nearly every country in the world.

Italy is in complete lockdown and over 1,000 people have now died from the virus, here in the UK at the time of writing 21 people have died. Panic is setting in across the world and this can be seen clearing across the world’s stock markets.

This is what the FTSE 100 is looking like to date. It has dropped a staggering 29.43% since the beginning of the year. The FTSE 100 hasn’t been this low since May 2012. Coronavirus FTSE100
The Dow Jones in the US has dropped 19.68% the lowest it has been since 2017. Coronavirus Dow Jones

You can tell panic has set in as people have started stock piling toilet roll and other essentials leaving the supermarkets bare.

The worst is yet to come

The FTSE 100 hasn’t seen a drop of this magnitude since the 2008 financial crisis and before that the DotCom bubble bursting in 2000. However, the coronavirus has barely touched the UK and already the fear has set in across the nation.

The recent plan hatched by the government is to try and get “herd immunity” to the virus, which involves over 60% of the population getting infected. With a mortality rate of the virus between 1-3% that could potentially cause the deaths of 300,000 to 1 million people in this country.

It seems the government has back tracked on this initial plan and is already planning on banning large public gatherings starting from next week. On a more positive note, the countries already on lockdown have seen a decrease in the number of new cases of the virus which at least gives us some hope that this can be contained.

Is all this panic warranted?

The media at the moment is painting a pretty bad picture but is this really the end of the world? As an investor, should you be panicking and selling off everything in the hope to salvage what you can?

Let’s look at the stats. Of those that get infected with the virus 80% have mild cases similar to the flu. Even though currently the mortality rate is around 3% that is only on reported cases. The majority of cases do not get reported as the symptoms are too mild.

Currently in the UK they reckon as many as 10,000 people may well be infected with the virus, putting the actual mortality figure nearer the 0.2% range.

As for the stock market I suspect it will get worse before it gets better but I believe it will get better. It might take a year or two but the stock market will bounce back and you will be glad you stayed the course rather than cut your losses now.

With hindsight if you had the opportunity to buy stock after the financial crisis would you have done it?

The last 30 years of the FTSE 100 shows that these crashes happen and unless this really is the end of the world things will get better. FTSE 100 30 years
Do I believe this virus will be the end of the world? No Do the majority of those infected recover? Yes Are the top 100 companies in the UK going to be permanently impacted by the virus? No

If you were planning on retiring in the next year or two then this may well have put a dampener on your plans. Especially if you still have most of your retirement fund in stocks instead of bonds. For the rest of us with retirement a little further off then why not take advantage of stocks being at a discount!

For me personally I am going to try and not look too much at my portfolio (which is down 11% since February) and carry on investing as normal. Hopefully the spread of the coronavirus will not last through the summer and we will be back up to the highs of February before the end of the year.



AUTHOR BIO

Alex started Pursuit of FIRE in 2019 to try and help people reach financial independence. He has spent nearly a decade working as a software developer in the finance industry and now is looking towards early retirement so he can spend more time with his young family.