Corona virus infects stock exchanges

After good stock-market developments in the first weeks of February, the month ended with sharp falls in share prices. Fears that the corona virus would spread overshadowed everything else.

For the month, the US S&P 500 Index fell by 5.8 per cent measured in USD, while the Stoxx 600 Index experienced a downturn of 6.6 per cent measured in EUR and the Nordic VINX Index ended down 4.0 per cent measured in NOK. The Oslo Stock Exchange (OSEBX) dropped by all of 9.1 per cent (NOK).

More cases of infection

Only a few weeks after the growth in the number of those infected with the corona virus in China was in the process of stabilising, there were reports of more cases of infection in the rest of the world. The number of cases was especially high in South Korea, Italy and Iran. The US health authorities also issued warnings concerning an outbreak in the USA and suddenly financial-market fears escalated. At the same time, there were increasingly reports of negative effects caused by production stoppages and drops in demand. Apple, for instance, announced at an early stage that it would not reach its sales and profit targets because of the virus.

Affected differently

A decline in the consumption of goods due to the corona virus is expected to be largely postponed. The same cannot be said for air travel, hotel accommodation or conferences. These are not likely to recover completely, and this will have a serious effect on the service sector – and especially the tourist industry. On the other hand, there are reports of a huge increase in the downloading of entertainment apps and streaming services, and this has been very profitable for the Internet giants. Although there are industries that benefit, this does not weigh up for poor manufacturing barometers, which are now showing the largest downturn since the financial crisis, driven by production stoppages to limit infection.

Interest rate cut by the Fed

Following sharp stock-market falls for seven days in a row, the US central bank (Fed) issued a press release on 28 February stating that it was ready to support the economy. This message was followed up on Tuesday 3 March, when the Fed cut the interest rate by 0.5 percentage points. The market is also pricing in further interest-rate cuts as early as at the interest-rate meeting on 18 March. Whether or not interest cuts are the right medicine to improve the stock markets in the short term remains to be seen.

The road ahead …

As long as the corona virus continues to spread, there will be a lot of uncertainty. However, history has shown that the stock markets do not require a lot of recovery to improve, they just require confirmation that recovery is taking place or certainty that things will not get worse. In the meantime, we are hunting for good buys.

"There is no risk-free path for monetary policy"
Jerome Powell