Welcome to the 2020 crash.
If you don’t remember the financial crisis of 2008 then welcome to your first market crash! For those of us who lived through 2008 this “feels” worse because it’s the first crash to truly play out live on twitter!
One day you’ll say you remember the day of carnage on global markets. The day a potential oil war, global pandemic and social media colluded to lose $6 trillion in value over the past six days across global markets.
And since it probably is your first, we wanted to break it down for you…
What caused it.
Covid-19, has been making global markets jittery. Markets don’t like uncertainty and given that we don’t know anything about when this virus will be contained (uhm, Italy) or what the consequences will be in the meantime (disruption to supply chains and productivity as well as reduced consumption – been to the shops lately?) the uncertainty may yet go on a while. And with that will come market fluctuations
Oil war, partly driven by the virus Saudi Arabia (together with OPEC) and Russia are having a tiff about oil prices. Saudi wants to reduce prices, Russia wants to maintain market share. The world doesn’t like oil uncertainty – too much rides on a stable, sustainable supply of oil at predictable prices.
What does it mean to you?
Short term: Markets will bounce up and down for the next couple of days/weeks as fear and greed compete for attention and primacy. This will wreak havoc on people’s portfolios and pension savings but if you stay hands off then they are paper based gains and losses. Already today markets are having a mini recovery as investors grab some bargains!
Medium term: This might trigger a global recession like 2008 if governments and central banks around the world run out of weapons to fight it. With record low interest rates the major tool that policymakers have has already been exhausted so we’ll see if they are able to show any proper leadership going forward!
Longer term: this too shall pass; booms and busts, bulls and bears, are all part of market cycles and if you look back over a long horizon you can see that markets always recover in an upward trend (the past performance is of course no indication of future success).
Is there money to be made?
The old adage of time in the market is more important then timing the market is an investment truth to live by.
That said with double digit drops in what appears to be a panic induced drop if you had considered entering the market at any point this just might be an interesting time to dip your toe in while prices of even some of the most blue chip stocks on the exchange are being sold at a heavy heavy discount.