The coronavirus pandemic has obliterated financial markets around the world. Share prices are falling, dividends have been cut, and investors are confused about how best to approach investing. Every day the headlines are filled with business news of losses, sales declines, job cuts and missed targets. The pain is huge, and although some equities have bounced back from the market crash in March, many individual stocks are still suffering.
Financial markets are cyclical in nature. There have been, and always will be, times of boom and bust. But I strongly believe the coronavirus stock market crisis will end, yet when and how remains to be seen.
Is coronavirus solely to blame?
While the current situation can largely be blamed on Covid-19, many analysts believe a market correction was long overdue.
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The reason for the dividend cuts is really for businesses to manage their cash flows in the short term. The fact that many of them did not have sufficient emergency reserves shows why the bull market was becoming unsustainable. As the coronavirus stock crisis essentially came out of nowhere, businesses were ready to collapse if they did not rapidly resort to drastic measures such as slashing dividends and cutting jobs.
If a company releases bad or disappointing news, its share price will be pummelled. Shareholders are already running scared with the coronavirus pandemic still rampaging and no obvious end in sight. Rising national debt is raising fears of interest rate hikes, and the dividend cuts have income investors spooked.
When will the coronavirus stock crisis end?
When a licensed vaccine finally emerges, I have no doubt it will work wonders at getting the stock market back on track. Whether that alone is enough to kick start a bull market is not yet clear.
A substantial lift in the oil price would also boost the financial markets, but that looks a long way off as demand for oil has hit an all-time low and production is still higher than needed. A working vaccine would help restore flights and factories to business-as-usual, in turn boosting demand for oil again.
I don’t think any of us can say for sure when the coronavirus stock crisis will end, but investing in quality stocks with strong business models will help your portfolio survive the downturn and emerge stronger.
Not all news is bad. Virgin Money saw a dip in consumer lending in the second quarter but has not yet witnessed a spike in credit losses. If the furlough scheme ends well without further job losses, then there is hope that this pattern will continue.
As a long-term investor, it is important to see the big picture and remember than everything is cyclical. Hold on, don’t give in to fear or greed, but build a resilient portfolio of stocks that will see you through market stress. This period of uncertainty is a great time for you to buy stocks at knockdown prices from which you can reap the rewards when the business gets back on track. Look to where you think companies will be in a few years time. If you see a clear path ahead for a business, it is not laden in debt and is likely to stay in favour, then these could be signs of a good buy.
