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Are the stock market declines inevitable?

Team Veye | 09 Mar 2020

Are the stock market declines inevitable?

Amidst the continuing string of deaths not only in China, falling stock markets and emergency rate cuts by banks, but it is also time to consider the ultimate economic impact of the coronavirus globally.

The widespread damage is not limited to the only disruption of the global supply chain thus causing wholesale shortages. Many other sectors including the travel and hospitality industry have also felt the heat.

The Governments worldwide have responded to this challenge on a war footing. With all the precautions and preventions everywhere, the good news is that the number of new cases in China has begun to fall.

The market fall had somewhat retreated earlier on the prospect of coordinated policy action from the world’s big economies. Central banks of Australia and Malaysia cut interest rates on Tuesday last week. The Bank of Japan also injected liquidity into the country’s financial system with the Bank of England showing its readiness to support the economy.

After the Federal Reserve’s interest rate cut failed to cut much ice, market participants turned up the heat on it to do even more. Fed policymakers may allay some fears, along with forecasts for economic growth, at the end of their March 17-18 meeting.

The Fed has a long history of coming to the market’s rescue with rate cuts and stimulus. This should, hopefully, instill some confidence in the market.

The action by central banks world over may not provide an immediate remedy to the affected sectors and broken supply chains but may help support overall economic activity.

While nobody can predict the exact behavior of the stock market, we all know it has its ups and downs. Sometimes unexpectedly though.

For investors and medium-term traders, such things could be a non-issue. In the past many years, almost all the markets have had significant drops, neither of which was lasting. In fact, some of these have registered handsome gains.

Disclaimer

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