Coronavirus Panic Selling Affects on the Stock Market
Bill Poulos is a seasoned stock investor and financial educator. He is the co-founder and CEO of Profits Run, Inc., a financial publication company that teaches smarter investing principles and philosophies. Profits Run provides individuals with materials to make educated investments through online courses, investment software, and coaching. Bill contributes to several online news sources to educate people on investment strategies. He is responsible for creating the Profits Run Starfish Award, to celebrate community members making a difference. Earlier this week, Bill Poulos wrote about the state of the stock market amid the coronavirus outbreak. Read his comments below.
What we witnessed last week in stock markets around the world is panic selling. Triggered of course by the coronavirus uncertainty. During periods of panic selling all rationale is overcome by emotion as well as headline driven computer algorithms.
The market was already well overdue for a correction and was waiting for the right headline to trigger that correction and right on cue we have the coronavirus scare. Now corrections do not usually occur so abruptly in a matter of five days but this one did and it may not be over. But the market will eventually find a bottom and at that point there will be buying opportunities abound.
If you’re a buy-and-hold investor you’ve already accepted the risk of a market downturn of 10–20% even 50% because you believe the market will always come back. But even though you intellectually accept that level of risk, when the market swoons as it did last week it is emotionally difficult to stick with the buy-and-hold discipline. So if you are a buy-and-holder, you already decided what you would do under these circumstances and that is to hold and so for you there is nothing to do.
If you are a trader on the other hand you had already exited long positions stopped out when the market first started to drop and you probably had some short positions as well to take advantage of the drop. So for traders it’s just another day in the markets.
So where to from here? Well the last panic selling of note occurred in December 2018 when the Fed was viewed as raising interest rates too rapidly. By late December there were few buyers to be found. And that marked the bottom of that particular panic selloff. The buy and holders were vindicated in the months ahead as the market rocketed higher and traders were well rewarded for exiting their short positions and establishing new long positions as the market rocketed higher.
While we don’t know for sure when the current selloff will dissipate when it does there will be opportunities abound once again.