The relevance of coronavirus fears in the market is a matter of timing


When do virus fears matter to investors in the market?


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The virus headlines coming out from the US over the past few days have been a little unsettling with yesterday itself (⬆️) not particularly looking good whatsoever by any stretch.

Yet, stocks easily brushed the news aside and after a bit of a stutter towards the finish line, they still ended up trading higher with the Nasdaq closing at a record level.

So, what gives? Why aren’t the virus headlines mattering as much now?

All that is a question of timing, for the most part.

Back in March, the rising case count is but a trigger factor for countries to impose lockdown measures and that alongside peak virus fear is what led to many market participants becoming worried about what the impact that may have on the global economy.

Fast forward to today, one element of that equation i.e. lockdown measures is gone and is not likely to return – at least not in a massive or nationwide manner.

If anything, US states (other countries as well) will look to put out fires when they see one rather than to take a drastic measures to reimpose blanket restrictions again.

But as case counts and hospitalisations start to rise, the impact on how much fear this is emanating across the country and the world remains a tough thing to gauge for now.

As much as economic conditions are seen improving in May and June relative to the conditions back in March and April, the real test will be for any significant pick up in the recovery in Q3 and Q4 this year.

That is where the social and psychological impact of the virus may have more of a say towards the supposed more robust recovery in the global economy.

If we step out of our houses to see that there are many people wandering outside the streets and are still going to restaurants and shops, what we don’t see is the flip side of it where there are also many people choosing to stay at home for the most part.

In that sense, virus fears will only start to matter when we are able to have a better indication or understanding of what the impact truly means for the economy.

If it isn’t going to lead to lockdown measures being reimposed, what is the other real impact? How does an increase in hospitalisations impact businesses and the labour market? How does an increase in case counts impact social and consumer behaviour?

In due time, we will get a better gauge of that via hard economic data. But again, most likely it will only be truly reflected in how fast/slow the recovery really is in 2H 2020.

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