Prepare yourself. There is a good chance markets will be volatile in the coming weeks.
Precautions designed to slow the spread of the coronavirus may also slow Chinese economic growth and, by extension, global economic growth.
On Thursday, the World Health Organization declared the coronavirus to be an international health emergency. The U.S. State Department issued a travel advisory for China, and major U.S. airlines suspended flights to the nation, reported Forbes.
In six Chinese provinces, factories and businesses are shuttered until at least February 10. The closures have created issues for global supply chains, and Financial Times reported, "Companies from luxury retailers to airlines and banks are reeling as the disease accelerates."
Events sparked a bond rally as investors shifted assets into safe haven investments. The Economist wrote that previous viruses have not had lasting effects on economic growth. "Other recent epidemics have reinforced the impression that economists should not be overly worried, so long as good doctors are on the job. Neither avian flu in 2006 nor swine flu in 2009 dimmed the global outlook. Yet even flint-hearted investors are wondering whether the new epidemic might be worse. Stocks in Hong Kong have fallen by nearly 10 percent as reported infections have steadily increased. Tremors have also rippled through global markets."
China's government is prepared to step into the breach. On Saturday, Reuters reported, "Chinese authorities have pledged to use various monetary policy tools to ensure liquidity remains reasonably ample and to support firms affected by the virus epidemic..." The Chinese central bank is expected to begin offering support on February 3 before the Chinese stock market reopens for the first time since January 23.
The European Union may also be in need of economic stimulus. Financial Times reported the Eurozone economy came to a virtual standstill (up 0.1 percent) in the fourth quarter and grew just 1.2 percent during 2019. Economies in France and Italy, the second and third largest in the region, both contracted during the fourth quarter.
Major U.S. stock indices moved lower last week.
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Data as of 1/31/20
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
-2.1%
|
-0.2%
|
19.3%
|
12.3%
|
9.8%
|
11.5%
|
|
Dow Jones Global ex-U.S.
|
-3.1
|
-2.7
|
7.2
|
5.0
|
2.6
|
2.9
|
|
10-year Treasury Note (Yield Only)
|
1.5
|
NA
|
2.6
|
2.5
|
1.7
|
3.7
|
|
Gold (per ounce)
|
1.3
|
4.0
|
19.7
|
9.3
|
4.5
|
3.8
|
|
Bloomberg Commodity Index
|
-3.2
|
-7.5
|
-7.3
|
-5.1
|
-5.9
|
-5.4
|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
