[Lincoln Herald foreword: the truth is--we are already in a recession. The stock market decline is just one part of the evidence. With schools closed, some parents are unable to work because they have to stay home to care for their children. With people not attending events, those who make their living from those events will suffer. With restaurants closed or offering only carryout or home delivery, those who work as wait-staff will be without an income. Hard times have arrived--although the full effect is yet to be felt. With so much bad news, we felt it important to remember, "this, too, shall pass." A short lesson in history follows.]
After weeks of headlines about the coronavirus outbreak, markets have been caught in a volatile pattern of surges and retreats. Here’s what you should know:
Why are markets so volatile?
Disease outbreaks are hard to predict and come with a great deal of uncertainty that can make investors nervous—particularly after a period of record market gains.
As the epidemic spreads beyond China, investors worry that it could cause serious disruptions to trade and the interconnected global economy.
How long will the volatility last?
It’s hard to say. Though the human cost of an outbreak like Coronavirus is tragic, it’s unclear how widespread the economic fallout will actually be. We can’t predict what markets will do, but this isn’t the first time we’ve grappled with market reactions to an epidemic.
The chart with this article shows some examples from previous outbreaks.
Though the past can’t predict the future, we can see that historically, markets reacted to epidemics with panic selling, but recovered after the initial outbreak.
However, epidemics don’t happen in isolation; the underlying economic and market fundamentals will influence how investors react long-term.
Pullbacks and periods of volatility happen regularly, for many reasons.
Whether the cause is an epidemic, geopolitical crisis, natural disaster, or financial issue, markets often react negatively to bad news and then recover.
Sometimes, the push-and-pull can go on for weeks and months, which can be stressful, even when it’s a normal part of the market cycle.
The best thing you can do is stick to your strategies and avoid emotional decision-making.
Because emotional reactions don’t lead to smart investing decisions. The biggest mistake investors can make right now is to overreact instead of sticking to their strategies.