Is the recent market selloff purely just because of corona virus or are there underlining problems

CreditCardChris

with the economy that have been going on for a while but people have not really been paying attention to? 

Before this outbreak the S&P was making new highs almost everyday. So is it safe to say this selloff is almost entirely fuelled by corona virus fears or are there actually underlining problems with the economy too? 

dunstonh

Markets needed a correction.  Some markets needed a crash too (although not all did).  This gave it the excuse it needed.

newatc

Never thought I'd disagree with Dunstonh whose posts I respect (and clearly knows far more about finance than I ever will) but Coronavirus is definitely effecting businesses and will continue for some time going forward. A correction was probably due but Coronavirus is a real economic threat  and as such is the major reason for the falls imho.

bowlhead99

newatc said:

Never thought I'd disagree with Dunstonh whose posts I respect (and clearly knows far more about finance than I ever will) but Coronavirus is definitely effecting businesses and will continue for some time going forward. A correction was probably due but Coronavirus is a real economic threat  and as such is the major reason for the falls imho.

The question was whether the market selloff was purely due to Corona or were there 'underlining problems' (sic).

Dunstonh agrees with you that 'a correction was probably due'. Markets needed a correction and in some cases a crash, to get to a more reasonable level, with Coronavirus being an excuse/catalyst for that to happen.

This is not to say that Coronavirus is not 'effecting businesses' (sic). Of course it is. There will be real drops of productivity and profits because of it. 

But to the question put forward by OP, of whether the rapid sell off is 'purely just because of corona virus' or whether there are/were some underlying problems with asset pricing, I think it is quite fair to say that the scale and pace of the drop in markets was not solely due to the short term 'external' factor of Coronavirus. Like other external shock to the  economic systems (2001's 9/11 attacks, 2003 SARS, 2011 Japanese nuclear plant failure) there will of course be a temporary shock to output and consumption which will impact asset pricing -and it is global rather than localised like some other events - but that is different to the question of what price is fair for a financial instrument on a long term view.

If the pricing in some markets had not been in need of an underlying correction, one might expect the impact on share prices from Covid-19 to have been less rapid or less severe.

worldtraveller

IMHO, a correction was well overdue, especially following the start of the recent trade wars. As dunstonh states, the coronavirus was the excuse, exacerbating the falls to a bear market. The volatility will continue for months and, for example, the bounce today will undoubtedly turn out to be a dead cat, again IMHO.

Personally, I'm following a very similar investment strategy to that I used back in the 2008/09 financial crisis, slightly adjusted based on my age now. Anyone with a strategy will have their own reasons for it, often based on several factors. There's no one size fits all.

DYOR

Thrugelmir

CreditCardChris said:

 are there actually underlining problems with the economy too? 

Bottom line. If there's no activity where does the cash come from to pay the bills? 

Reaper

There were some signs of an over exuberant stock market, particularly in the USA. There was also the largely ignored effect of trade wars. However despite that my opinion is it is mostly virus related. As a result I believe it will bounce back once the virus has passed as the damage from restricted business activity will only affect short term profits. Particularly with the new boosts from governments such as lowering interest rates.

So there you have it. Adding my thoughts to those above I think you have the full spectrum of possible answers. Take your pick.

worldtraveller

Reaper said:

There were some signs of an over exuberant stock market, particularly in the USA. There was also the largely ignored effect of trade wars. However despite that my opinion is it is mostly virus related. As a result I believe it will bounce back once the virus has passed as the damage from restricted business activity will only affect short term profits. Particularly with the new boosts from governments such as lowering interest rates.

So there you have it. Adding my thoughts to those above I think you have the full spectrum of possible answers. Take your pick.

Yup, it'll bounce back for sure, at some point, and one of the next questions I'll be pondering later on, of which I have no idea of at the moment, is if it'll maybe resemble the likes of a U, or a V. Too early by far to seriously consider it today, IMHO, but, if the latter, it could catch a lot of people out who may have gone down certain routes. Ho Hum! GLA

ProDave

I have been thinking for some time, the markets were top heavy.  FTSE100 was at best marking time for the last 2 years, up a bit, down a bit, no clear direction.

I have been thinking it was waiting for a trigger to fall, and I thought that trigger would be the B word, but nobody predicted the C word.

Now I am waiting for a clear sign of the bottom to buy in for the recovery, but not at all convinced that today is anything other than a dead cat bounce.  Just wait until the UK moves to the next phase with serious restrictions, as it WILL do in a few weeks.

eskbanker

CreditCardChris said:

are there actually underlining problems 

Yes, the new forum software doesn't allow it

As to whether there are underlying economic issues, well, that's a different question....

Linton

An alternative view: once the number of cases begins to decline I expect prices to rebound very quickly.  The underlying global financial situation remains the same.  There is a lot of cash around and nowhere very inviting to put it.  Even very long term bonds are now returning very little interest eg 0.56% YTM for a bond with 48 years to maturity.