Have you been watching the markets lately? We have been on a historic, almost 10-year-long, bull run. A bull run is when prices in the stock market rise over an extended period of time, whereas in a bear run, the opposite is true. You can remember the difference by picturing a bull, which bucks upwards, and a bear, who swipes his claw downwards.
You may also have noticed that the DOW and S&P 500 dropped more than 3 percent last Monday and the NASDAQ had a two-day drop of 6.38 percent–the worst since June 2016.
What should investors do with this information? If prices are dropping, should you be selling your assets before prices can get any worse? Is now the time to buy and ride out the market dip? Making hasty sell decisions is rarely a good choice in times like these.
Here are two major factors driving changes in the market, and what investment professionals are saying about them:
You’ve surely heard about the coronavirus (COVID-19). While the loss of life and emotional toll of the disease are potentially monumental, we will focus on the financial side of things.
At this time, experts predict that although the results will be substantial, and already are, they will be temporary. Historically, when there is an outbreak such as this, markets are influenced in the short-run, but recover following the outbreak. One aspect of the coronavirus that is likely to have a lasting global impact, is the issue that is created in supply chains with shut downs in China.
Since we source many of our products from the country, there is fear that companies will not be able to meet consumer demands. This may cause ripple effects that last into the rest of 2020. Some companies, such as Apple, predict lower sales in the fiscal year. Apple’s sales may be down this year if they are not able to produce enough iPhones for the company’s annual new product release, which is generally in September.
Politics are also a major factor in financial markets. With the upcoming election and primaries beginning, news in politics is constantly impacting the market. Although the influence of politics on the market is difficult to predict, there are several trends that have been noticeable. Presidential candidates are often gauged as “pro” or “anti” business and the stock market reacts accordingly. When candidates generally seen as pro-business are leading in the polls, the market tends to go up. When candidates that aren’t seen as pro-business are in the lead, the market tends to head in the opposite direction.
Going one step further, certain sectors and companies can be impacted to a greater extent depending on the platform of the politicians. For example, a “hawkish” politician would be good for the defensive industry versus a “dovish” politician. That being said, the effect on the stock market is a wild card. At this point in the election process, investors will see politics playing a heavy role in the market, which will likely increase the volatility of stocks.
With everything going on in the markets, it is difficult to predict how the multitude of influences will blend together to move the market going forward. Watch this week’s video to learn more about supply chain management, and how investors can use this information when making decisions.