Investors pile in on hopes of turbocharge from stimulus

Down as much as 23% since the January peak, our head of markets assesses prospects for global equities.

The confluence of events that has led to today’s declines is a bitter pill to swallow, but also a reminder that dynamic markets are by their nature prone to volatility.

On a year-to-date basis, the FTSE 100 index has lost over 20%, representing a move into bear market territory.

Source: TradingView Past performance is not a guide to future performance

The oil price has been the latest victim from an evolving story which has heightened fears of a potential global recession, as initiated by the outbreak of the coronavirus. 

With Russia refusing to play ball with OPEC and Saudi Arabia flooding the market with oil for which there is seemingly little demand, the effect on the oil price has been severe by any standards, immediately impacting some of the largest constituents in the FTSE 100 in the form of the oil majors, BP (LSE:BP.) and Shell (LSE:RDSB).

Source: TradingView Past performance is not a guide to future performance

At the same time, China has confirmed that its exports fell by over 17% during January and February and, even if the virus is showing signs of stabilisation both there and in Korea, concerns have now switched to the impact in both Europe and the US. At best, it seems that the first quarter is likely to be something of a write-off in economic terms and, as the weeks tick by, this could well flow into the second quarter as well.

US indices, already hit today by circuit-breakers in its own futures market, are therefore also likely to open sharply lower, which could continue the domino effect.

• FTSE 100 falls over 8% at market open to slip below 6,000 points
• Commodities outlook: Buy gold, sell oil?

Certain sectors will have been caught in the crossfire of the souring sentiment, even though the fundamentals of those businesses have not changed overnight. It is impossible to call the bottom in markets such as these and difficult to anticipate positive catalysts, but turmoil such as this can provide buying opportunities.

Indeed, that particular message seems to be resonating with interactive investor’s customers – around 90% of those who have decided to trade today are buyers.

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Markets will now be hoping for a coordinated turbocharge from global central banks, which, given the decreasing lack of firepower for most due to the stimulus measures already introduced, could have limited effect. However, if this is accompanied by a pledge from governments to add fiscal stimulus into the mix, the combined statement of intent could well underpin market sentiment.

One of the few factors that can be guaranteed in the shorter term is volatility. By the same token, investment is a marathon not a sprint and, however difficult that may be to remember in this environment, it should also offer some solace to long-term investors.