It’s easy to panic when there seems to be a disaster, remaining calm in the midst of the uncertainty is the challenge most fail to overcome. This may read as a philosophical line, however, this translates to what we see taking place within financial markets. Especially over the last few weeks, in particular, yesterday, in which many have gone as far as to dub “Black Monday”.
Markets have been on a slide due to the rapid and global spread of COVID-19, with the FTSE dropping over 8% yesterday, essentially meaning it has reverted back to its price from 2016, all in 2-3 months of bearish trading. Gold, which is the market’s measure of uncertainty, climbed back up to $1,700 – completing a $100 in 1-week price rise. Moves similar to what we saw during the 2008 housing crash. However the real story so far this week, was what we saw take place within Oil, as OPEC was unable to agree to a supply cut, leading Saudi to not only cut-price but increase supply. The logic here potentially being that the best cure for a low price, is an even lower price, to boost demand.
Opportunities in Stocks?
Could this logic in fact be the encapsulation of “remaining calm whilst all else panic?” Whether this works we will see, however in stock markets, similar to Oil prices have experienced a steep decline. US indices saw several “limit down” orders actioned yesterday as declines in prices were too great. With that said let’s imagine, going back years ago, at Facebook pre-IPO, would you invest? Go further back look at Amazon or Google? The answers resoundingly will be yes. So let’s come back to today. With share prices in companies down, is this in fact a crisis or an opportunity?
The above chart goes back 4 years. As you can see there have been various instances where the value declines, and although there is an opportunity in the short-selling for day traders, long term the value seems to be in the upward direction. So although markets are in turmoil, and could continue to fall, those who look at the bigger picture, may realize that when the current fires are eventually put out, the demand, growth, and value creation will return.
Senior Market Analyst