Coronavirus market impact
As the reaction to coronavirus continues to cause dramatic market volatility, traders choose us because we have been delivering a world-class trading experience for over 45 years.1
Follow the impact the disease is having on financial markets here, and discover how we can help you navigate volatility.
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How is the coronavirus impacting financial markets?
Covid-19 caused widespread harm to financial markets in 2020, with all hopes for a return to normality pinned on the development of a vaccine. That hope came on 9 November 2020, when Pfizer announced that it had developed a treatment for Covid-19 that was 90% effective. Markets bounced on the news, with global indices hitting annual highs.
That said, for the most part economies around the globe have suffered hits to GDP growth during the pandemic as lockdown measures alter supply and demand. Millions of people have been off work, schools have been shut and thousands of restaurants and other businesses have closed – some for good. As a result, recessions are in effect in a large number of the world’s leading economies.
Global financial markets have also been experiencing extreme volatility as investors grapple with the multitude of effects the virus could have. To highlight the impact 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
Read more on the markets’ reaction to coronavirus, or take a look at our latest news and trade ideas.
Comparing the impact of coronavirus and historical crashes on the S&P 500
- Initial impact
- What happened next
- Recovery
Day zero on the chart is the final high of the S&P 500 at market close, before the bear market began.
Data is accurate as of 3 November 2020
Day zero on the chart is the final high of the S&P 500 at market close, before the bear market began.
Data is accurate as of 3 November 2020
Day zero on the chart is the final high of the S&P 500 at market close, before the bear market began.
Data is accurate as of 3 November 2020
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Coronavirus and market volatility
- What's happening now
- What could be to come
- What's happened already
The table below shows the live prices for some of the financial markets that have been impacted by coronavirus volatility.
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Although there is no way to know for sure what the lasting effects of Covid-19 could be on financial markets, discussions have become increasingly forward-thinking as countries begin to discuss the easing of lockdown measures and a potential second wave of infection.
While the economic measures to support businesses and individuals throughout this crisis may lessen the impact, the 'new normal' of social distancing will inevitably have a significant effect 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.
Stocks
While coronavirus volatility started in mid-February, it came to a head on what's being called the new ‘Black Monday’ – 9 March 2020. The day saw global stock markets collapse in one of the largest single-day declines since the financial crisis of 2007-2009. That kicked off a move out of stocks in the travel sector and services, in favour of growth or momentum names in the tech sector. With traders considering how this could represent a permanent shift towards tech business, the outperformance for the Nasdaq over more services-led markets like the FTSE 350 has been marked.
While earnings have been disappointing, markets typically trade on expectations. Thus much of the focus has been on the forecasts and outlooks as much as the numbers themselves.
Indices
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 have been triggered numerous times as the economic fallout of this global pandemic plays out. In the UK, the FTSE 100 fell to an eight and half year low following the news that the country would go into lockdown. Over time markets have become less sensitive to such announcements, with the proximity to a vaccine ensuring that declines are somewhat lessened in nature.
Commodities
Oil markets have seen significant volatility which centred around an April capitulation in WTI that sent the front-month contract into negative territory. With fears over huge oversupply due to an unprecedented drop in demand, OPEC+ actions has been a drop in the ocean. Nevertheless, we have seen a recovery since those April lows. While the secondary lockdown fears have dented that journey, the prospect of a pharma-led recovery in global travel should gradually help improve the outlook for crude.
Forex
The US dollar’s ‘haven’ status initially saw the currency increase in value to reach a peak in March. However, with markets recovering, so we also saw that haven demand dry up to send the greenback heavily lower, reaching a fresh two-year low in September.
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1 Based on revenue (published financial statements, 2022); for forex based on number of primary relationships with FX traders (Investment Trends UK Leveraged Trading Report released July 2019).
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4 As awarded at the Investors Chronicle and Financial Times Investment and Wealth Management Awards 2018, and the Professional Trader Awards 2019.
