This week has been concerning for investors, with historically significant slides in the stock market, seemingly due to fears surrounding the global spread of Coronavirus. While most virus activity is still limited to the Chinese mainland, 40 countries and territories have now detected cases. In the United States, the CDC has warned that an outbreak is inevitable.
However, with little actual impact on the U.S. today, is Coronavirus the only factor causing declines in American equities? Learn what’s driving market fears today.
Potential Economic Impact of the Coronavirus
The Coronavirus has significantly slowed China’s economy, disrupting supply lines and the manufacturing sector. The Chinese retail sector has also slowed, directly impacting U.S. businesses. Many of the largest companies, including Microsoft and Apple, have warned that they will miss earnings guidance in the current quarter. Investors are concerned that a prolonged viral outbreak could stifle the growth of companies that are exposed to China and other international markets.
The Upcoming Presidential Election
A Presidential Election always brings uncertainty to stock markets. Growth has been impressive under President Trump, and if he stays in office for a second term, there’s nothing strong to suggest that the economy won’t continue on its current path. However, if a Democrat wins the election, it’s impossible to gauge what impact that would have on businesses and the wider economy. Some investors are concerned that Senator Bernie Sanders, a frontrunner for the Democratic nomination, could be more antibusiness than Presidents in recent memory.
Lingering Fears of a Recession
Although the American economy is still growing, there are analysts who believe that a recession is on the horizon. With Coronavirus threatening to destabilize international markets, there are new fears that the economy will slow and eventually recede in the coming quarters.
This is pure speculation, and it’s important to note that job growth and consumer spending are still high.
Some analysts have been warning of a market correction for weeks. At the end of last week, the forward price-to-earnings ratio in stocks was the highest it has been since 2002. It’s possible that stocks are overvalued. This often leads to investor pullback and a slowdown in trading activity. It can also cause selloffs, which is what we’ve seen in recent days.
All of these factors have come together to cause record slides, but many top stocks are still in positive territory when looking at the year to date. This is an uncertain time for investors, where following the news cycle will be crucial. Portfolio diversification and restraint from reactive emotional trading will be particularly important.
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