Coronavirus and the markets

by Victoria Podd

In recent weeks, the coronavirus has never been far from the headlines. The number of cases worldwide is now nearing two million, with over 1,920,000 confirmed cases of Covid-19 with more than 119,000 deaths.

While governments around the world take draconian steps to stem the spread of the virus, one of the most immediate consequences of the coronavirus outbreak has been the impact on global stock markets.

On Thursday 12th March, the FTSE 100 had its worst day of trading in more than three decades, after falling by more than 10%. In fact, in the space of a month, the FTSE 100 fell by over 30%. As the graph below shows, there has been some recover from the low in the last couple of weeks, but market conditions still remain volatile.

Other markets around the world have also seen falls. While you may be concerned about the short-term volatility of the markets, it’s important to remain calm and focused on your goals.

Market falls tend to be short, sharp shocks

Whenever you invest in equities, short-term volatility is something that you should expect and accept. Everything from the Budget to Donald Trump’s social media updates can affect what happens to markets around the world, and so on any given day or week prices will fluctuate in the short term.

However, in the long-term – and that’s what the vast majority of us are investing for – markets tend to offer positive returns.

Here’s the year-on-year FTSE 100 performance between 2009 and 2018:

Source: IG

During this period, the compound return was 8.8% per annum. As a total return that was 121%.

In the longer term, IG report that the compound annual return of the FTSE 100 over the last 25 years was 6.4% with dividends reinvested. This would be a total return of 375%.

If your long-term goals haven’t changed, it’s unlikely that your plans should. Your goals are likely to be the same as they were a week or a month ago. Our investment strategies are designed with the long term in mind, and this naturally considers periods of both positive and negative returns.

Earlier this year, Charles Schwab published research into the reaction of global stock markets to other pandemics.

The conclusions were clear:

“While there is always the chance that the next outbreak could have greater consequences, the global economy and markets have been relatively immune to the effects of past viral epidemics – even when the global economy was especially vulnerable to a shock. A short-term dip in stocks tended to be followed by the continuation of the upward trend.”

Two other things to bear in mind

  1. You have a diversified portfolio. The fall in the value of the FTSE 100 is typically not the same as the fall in the value of your portfolio. Our clients have diverse portfolios that include exposure to other asset classes, for precisely this type of situation.
  2. Now is a bad time to panic. If your house had fallen in value in the short-term, it is unlikely that you would immediately put it up for sale and realise a loss. While our emotions might take over at this time, reacting to a fall in the markets can be a mistake, and many studies have found that this is one of the main reasons why investors lose money.

Continuing to serve you during this difficult time

In recent days, the government has updated its advice in relation to the coronavirus pandemic. So, in line with many other individuals and businesses, we’re taking some action.

We’d like to reassure you that, where possible, our business will continue as normal. While there will clearly be some changes to our ways of working in the coming weeks and months, it’s important to underline that we are here, and available, when you need us.

We are committed to hosting meetings remotely by phone or video, so please just let us know if we can arrange this for you. In addition, any office closure will have no effect on us answering your calls or acting on any instructions.

During this period, please get in touch with us by email or phone if you need us.