The coronavirus outbreak has claimed more than 3,000 lives and infected almost 90,000 people worldwide. This has led to travel bans being imposed, events being cancelled and a slow down in manufacturing, all of which can have a knock-on effect on the world’s stock markets.
What is happening to the stock market amid COVID-19 fears?
Last week the UK’s stock market, the FTSE 100, had its worst week since the 2008 financial crash.
Over the course of five days, about £210bn was wiped off the value of the UK’s biggest businesses, with the blue-chip index falling 13 percent.
When a new disease starts to spread across the world, investors can become twitchy because there is the potential to disrupt supply chains, shut down factories, stop consumers from spending their money, so they sell shares.
But despite episodes of volatility – like the SARS outbreak in 2002 – stocks, in general, go up over time, however, every instant is different and the past does not guarantee how the future will play out.
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FTSE 100 and Dow Jones fears: What is happening to the stock market amid COVID-19 fears? (Image: Getty)
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One sector that has been badly affected by COVID-19 is the travel industry.
Last week, shares in British Airways’s owner IAG, Iberia and Aer Lingus fell by more than 20 percent.
With less demand for European and Asian flights as well as the cancellation of industry events – which can often help drive investment – stocks in airlines decreased in value.
Easyjet, for example, saw its value fall by 27 percent last week after it announced it was cancelling flights, notably those to and from Italy where the coronavirus has infected 1,696 and killed 34.
FTSE 100 and Dow Jones fears: The FTSE recovered on Monday (Image: Getty)
FTSE 100 and Dow Jones fears: Last week was Wall Street’s worst since the 2008 crash (Image: Getty)
On Monday, the FTSE recovered from its bad week thanks in part to the Bank of England lending its support to the UK’s economy to combat any impact from the coronavirus outbreak.
The FTSE 100 did swing wildly throughout the day though, going up three percent in the early trading before turning one percent lower later on then settling at closer to its opening mark at lunch.
Airlines continued to struggle amid continuing suspensions to routes and a drop in demand.
On Monday morning IAG dropped by nine percent and easyJet by 4.5 percent.
Earlier in the day, the Organisation for Economic Co-operation and Development warned the coronavirus is the gravest threat to the global economy since the 2008 financial crisis.
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A spokesperson for the Bank of England said: “The Bank continues to monitor developments and is assessing its potential impacts on the global and UK economies and financial systems.
“The Bank is working closely with HM Treasury and the FCA – as well as our international partners – to ensure all necessary steps are taken to protect financial and monetary stability.”
The Bank of England’s support for the markets comes after similar statements from Japan and the US.
In a rare emergency intervention, the Bank of Japan announced it will inject fresh liquid assets into markets and may increase its asset purchase programme in order to ensure the stability of the economy.
FTSE 100 and Dow Jones fears: The Bank of Japan pledged its support to the country’s markets after they also struggled in the epidemic (Image: Getty)
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Late on Friday night, the chairman of the Federal Reserve, the US’s central banking system, promised to “act as appropriate to support the economy”.
Jerome Powell said: “The fundamentals of the U.S. economy remain strong, however, the coronavirus poses evolving risks to economic activity.”
The American stock market showed signs of life on Monday after its worst week since the 2008 recession.
The Dow Jones Industrial Average soared toward an astonishing triple-digit recovery following a volatile futures session.