Why is Corona Virus crashing stock markets?
Discussion
The FTSE had its biggest fall in value this week since the 2008 crash, thanks to the Corona virus, and I don't understand why?
OK, I get that economic growth is going to be slowed by the impact of the virus, but the money presumably has to go somewhere, doesn't it?
You decide to sell off stock in Tata Motors or Apple because they're struggling to get the components they need from China to build Jags or iPhones, but what happens next? Why wouldn't you buy stock in something less likely to be affected, thus increasing that stock value and offsetting the drop in Tata & Apple?
Also, why aren't others coming in thinking "this isn't going to last forever" and buying up the Apple & Tata stock, thus levelling the market back out again?
Personally, the only investing I do is stuffing as much as I can into my pension, so for me I can only assume that this is a good thing, since the same Sterling value coming out of my pay packet this month is going to buy me a goodly percentage more stock units this month than it did last month, and I've got 10 years until I expect to retire, so plenty of time for the value of those units to recover from Corona virus?
OK, I get that economic growth is going to be slowed by the impact of the virus, but the money presumably has to go somewhere, doesn't it?
You decide to sell off stock in Tata Motors or Apple because they're struggling to get the components they need from China to build Jags or iPhones, but what happens next? Why wouldn't you buy stock in something less likely to be affected, thus increasing that stock value and offsetting the drop in Tata & Apple?
Also, why aren't others coming in thinking "this isn't going to last forever" and buying up the Apple & Tata stock, thus levelling the market back out again?
Personally, the only investing I do is stuffing as much as I can into my pension, so for me I can only assume that this is a good thing, since the same Sterling value coming out of my pay packet this month is going to buy me a goodly percentage more stock units this month than it did last month, and I've got 10 years until I expect to retire, so plenty of time for the value of those units to recover from Corona virus?
People panic.
Markets were arguably too expensive anyway.
You wake up and every news outlet you look at tells you you're f
ked and everyone else is selling so you join them.
If you look at a world tracker this is what's actually happened so far.
It's not good but think of it as "back to December 2019" and it suddenly doesn't look so bad.
Markets were arguably too expensive anyway.
You wake up and every news outlet you look at tells you you're f
ked and everyone else is selling so you join them.If you look at a world tracker this is what's actually happened so far.
It's not good but think of it as "back to December 2019" and it suddenly doesn't look so bad.
Kermit power said:
So where is the money going? Are people just holding it as cash? Investing in other asset forms?
Gold is climbing in value again so I'd suggest some of it is going into that. Some people might just be increasing liquidity/cash reserves in the event of a serious economic downturn.
If you have a standing order monthly buying into funds, over the long term it doesn’t matter. I am carry on my investment, good thing is because of this dip the same money will buy more units. Over the long term any bumps like this don’t matter.
For individual shares/companies it may be different if there is a risk of the company going bust. I am sure it’s more complicated than this but I am happy with my sproach.
For individual shares/companies it may be different if there is a risk of the company going bust. I am sure it’s more complicated than this but I am happy with my sproach.
Kermit power said:
The FTSE had its biggest fall in value this week since the 2008 crash, thanks to the Corona virus, and I don't understand why?
OK, I get that economic growth is going to be slowed by the impact of the virus, but the money presumably has to go somewhere, doesn't it?
You decide to sell off stock in Tata Motors or Apple because they're struggling to get the components they need from China to build Jags or iPhones, but what happens next? Why wouldn't you buy stock in something less likely to be affected, thus increasing that stock value and offsetting the drop in Tata & Apple?
Also, why aren't others coming in thinking "this isn't going to last forever" and buying up the Apple & Tata stock, thus levelling the market back out again?
Personally, the only investing I do is stuffing as much as I can into my pension, so for me I can only assume that this is a good thing, since the same Sterling value coming out of my pay packet this month is going to buy me a goodly percentage more stock units this month than it did last month, and I've got 10 years until I expect to retire, so plenty of time for the value of those units to recover from Corona virus?
Some companies could be badly affected. Some are already giving profits warnings. OK, I get that economic growth is going to be slowed by the impact of the virus, but the money presumably has to go somewhere, doesn't it?
You decide to sell off stock in Tata Motors or Apple because they're struggling to get the components they need from China to build Jags or iPhones, but what happens next? Why wouldn't you buy stock in something less likely to be affected, thus increasing that stock value and offsetting the drop in Tata & Apple?
Also, why aren't others coming in thinking "this isn't going to last forever" and buying up the Apple & Tata stock, thus levelling the market back out again?
Personally, the only investing I do is stuffing as much as I can into my pension, so for me I can only assume that this is a good thing, since the same Sterling value coming out of my pay packet this month is going to buy me a goodly percentage more stock units this month than it did last month, and I've got 10 years until I expect to retire, so plenty of time for the value of those units to recover from Corona virus?
Take an airline like EasyJet, what happens if there are restrictions on travel. They still have all their overheads to pay, but much reduced income. If a flight doesn't fly that's lost. It's not like stock you can sell later, same for hotels etc.
Stocks are already way over priced IMO so a correction has been on the cards for a while.
Longer term it's just going to be a blip though.
Kermit power said:
The FTSE had its biggest fall in value this week since the 2008 crash, thanks to the Corona virus, and I don't understand why?
It's because corona virus kills everyone that catches it whereas nobody dies from the flu, isn't it? Actually, no I don't understand why the markets have crashed.98elise said:
Kermit power said:
So where is the money going? Are people just holding it as cash? Investing in other asset forms?
That's what I've done. I started selling off from my SIPP last week it's now sitting as cash waiting for things to settle down.I moved a load of my pension fund into Gvt Bonds, corporate bonds and cash last week.
Over simplified but for example a gvt bond is effectively government debt and therefore the least likely to go bust or not pay out and therefore seen as a safe haven.
They are a limited supply and pay a low rate of interest, because they are limited supply as the demand for them rises, their price rises.
This is why if you hear people talking about yields dropping, they are running for cover.
With no demand, a bond paying £1 in £100 has a 1% yield. If the price of that bond doubled because of demand to £200, the yield drops to 0.5%.
It’s all relative anyway as moving stuff into cash when Boris goes and s
t talks the pound over Brexit negotiations loses you money from a global perspective 
Ari said:
Kermit power said:
Also, why aren't others coming in thinking "this isn't going to last forever" and buying up the Apple & Tata stock, thus levelling the market back out again?
Some people are...Much of the selling will be driven by computers. Institutions design algorithms to help decide on in what circumstances to sell and in what volumes. They rarely include any variable to dictate what to buy with the sale proceeds. Many believe this kind of trading exaggerates market movements.
Kermit power said:
...
Also, why aren't others coming in thinking "this isn't going to last forever" and buying up the Apple & Tata stock, thus levelling the market back out again?
...
They are. Every single share sold into this panic has been bought by someone else. The only thing worse than bad news for markets is uncertain bad news. Both CV and Sanders are uncertainty. When there are no buyers markets freefall and they haven't, despite the media's best efforts to make it sound like a disaster!Also, why aren't others coming in thinking "this isn't going to last forever" and buying up the Apple & Tata stock, thus levelling the market back out again?
...
Lots of reasons.
Some companies are going to be hit directly by the panic. Airlines, stadium operators, people who feed the other people who go to large events, hotels. Other companies will be hit indirectly. If airlines aren’t flying, then BP sell less Avgas, and the transport operators suffer. Some companies can’t get bits for the stuff they make. Some companies will do really well: 3M are making out like bandits producing face masks. Lots of people will be sent home and not paid.
Overall, we are looking at a contraction - results in the next year will be more st than planned. That (on its own) moves markets. The company I work for is 10% down - I can think of no material linkage between Corona and us, but we’ve been hit because our clients have been hit.
So there’s been a sell off. Big deal. It’s still not cheap. Some people (a very small percentage) will be taking their cash and turning it into gold. Others are simply not buying - markets don’t like uncertainty. If there are no buyers, then the price falls until the buyers arrive. That’s just the way it works.
Some companies are going to be hit directly by the panic. Airlines, stadium operators, people who feed the other people who go to large events, hotels. Other companies will be hit indirectly. If airlines aren’t flying, then BP sell less Avgas, and the transport operators suffer. Some companies can’t get bits for the stuff they make. Some companies will do really well: 3M are making out like bandits producing face masks. Lots of people will be sent home and not paid.
Overall, we are looking at a contraction - results in the next year will be more s
t than planned. That (on its own) moves markets. The company I work for is 10% down - I can think of no material linkage between Corona and us, but we’ve been hit because our clients have been hit. So there’s been a sell off. Big deal. It’s still not cheap. Some people (a very small percentage) will be taking their cash and turning it into gold. Others are simply not buying - markets don’t like uncertainty. If there are no buyers, then the price falls until the buyers arrive. That’s just the way it works.
I've paid a deposit on a cruise. It won't be long before I'm asked for the balance. At the moment, it looks like I'll cancel. If enough are of like mind, the cruise will be cancelled as it will not make economic sense to start the engines. A boat floating empty is an expensive option. The lack of people flying out to 'my' boat and the others going to other boats, hotels and such might well give rise to flights being cancelled. A plane sitting on a remote stand at Gatwick doing nothing costs a fortune. Then there's the suppliers to the boat and plane, fuel, staff, taxes and so many other on-costs that it soon adds up.
The stock market hasn't crashed. It's dropped. As someone said, this is probably due to the algorithms.
The stock market hasn't crashed. It's dropped. As someone said, this is probably due to the algorithms.
If you look at this dispassionately, there are a couple of options.
Option 1 - this is much worse than everyone is saying and we’re all going to die - who cares about the stock market.
Option 2 - this is going to kill off a swathe of elderly and infirm, and a small number of economically active people. Housing crisis solved, care crisis solved, massive release of capital into the economy, we’re looking at a booming couple of decades. Stock market should be going up.
Option 3 - it’s going to blow over, but in the meantime people will panic. Most likely option. Sell leisure, buy consumer goods. Next year everyone will be laughing about it. Buy the dips.
Conclusion - don’t panic.
Option 1 - this is much worse than everyone is saying and we’re all going to die - who cares about the stock market.
Option 2 - this is going to kill off a swathe of elderly and infirm, and a small number of economically active people. Housing crisis solved, care crisis solved, massive release of capital into the economy, we’re looking at a booming couple of decades. Stock market should be going up.
Option 3 - it’s going to blow over, but in the meantime people will panic. Most likely option. Sell leisure, buy consumer goods. Next year everyone will be laughing about it. Buy the dips.
Conclusion - don’t panic.
rxe said:
If you look at this dispassionately, there are a couple of options.
Option 1 - this is much worse than everyone is saying and we’re all going to die - who cares about the stock market.
Option 2 - this is going to kill off a swathe of elderly and infirm, and a small number of economically active people. Housing crisis solved, care crisis solved, massive release of capital into the economy, we’re looking at a booming couple of decades. Stock market should be going up.
Option 3 - it’s going to blow over, but in the meantime people will panic. Most likely option. Sell leisure, buy consumer goods. Next year everyone will be laughing about it. Buy the dips.
Conclusion - don’t panic.
Well that's 3 options.Option 1 - this is much worse than everyone is saying and we’re all going to die - who cares about the stock market.
Option 2 - this is going to kill off a swathe of elderly and infirm, and a small number of economically active people. Housing crisis solved, care crisis solved, massive release of capital into the economy, we’re looking at a booming couple of decades. Stock market should be going up.
Option 3 - it’s going to blow over, but in the meantime people will panic. Most likely option. Sell leisure, buy consumer goods. Next year everyone will be laughing about it. Buy the dips.
Conclusion - don’t panic.
However I think Option 2, but toned down a bit, is what we're looking at.
ianrb said:
rxe said:
If you look at this dispassionately, there are a couple of options.
Option 1 - this is much worse than everyone is saying and we’re all going to die - who cares about the stock market.
Option 2 - this is going to kill off a swathe of elderly and infirm, and a small number of economically active people. Housing crisis solved, care crisis solved, massive release of capital into the economy, we’re looking at a booming couple of decades. Stock market should be going up.
Option 3 - it’s going to blow over, but in the meantime people will panic. Most likely option. Sell leisure, buy consumer goods. Next year everyone will be laughing about it. Buy the dips.
Conclusion - don’t panic.
Well that's 3 options.Option 1 - this is much worse than everyone is saying and we’re all going to die - who cares about the stock market.
Option 2 - this is going to kill off a swathe of elderly and infirm, and a small number of economically active people. Housing crisis solved, care crisis solved, massive release of capital into the economy, we’re looking at a booming couple of decades. Stock market should be going up.
Option 3 - it’s going to blow over, but in the meantime people will panic. Most likely option. Sell leisure, buy consumer goods. Next year everyone will be laughing about it. Buy the dips.
Conclusion - don’t panic.
However I think Option 2, but toned down a bit, is what we're looking at.
Isn’t this a value thing?
Stocks are going down because of supply chain problems and also demand side predicted downturn. That doesn’t mean that other products un affected are suddenly worth more.
No one is buying an extra hat because jaguar has closed a factory for a week. Hat value should remain stable or possibly slightly decline as there is generally less money going around.
Stocks are going down because of supply chain problems and also demand side predicted downturn. That doesn’t mean that other products un affected are suddenly worth more.
No one is buying an extra hat because jaguar has closed a factory for a week. Hat value should remain stable or possibly slightly decline as there is generally less money going around.
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