Updated: Jul 1, 2020
I do not think that we would be a so-called "normal" newspaper if we did not talk about the hottest topic at the moment: Coronavirus. Coronavirus, at the time of writing, has already killed more than 3,800 people and has infected more than 109,000 people. The virus has a very high rate of contagion; however, it has a very low death rate.
The governments recommendations are to wash your hands, cover your mouth and nose with a tissue or your sleeve (not your hands) when you cough or sneeze and to avoid going out. Here we are going to focus on this specific detail; to “avoid going out” and how this is affecting the markets and businesses.
Ironically, the one certainty with the market is that it ABSOLUTELY does not like uncertainty. If the risk/reward balance does not pay off, all the big investors will pull out. This is what we saw the past week. The virus has been known for more than a month now, but it was being perceived as the virus of China that will never come to our doorstep. The markets started to react when it did reach Europe. The reaction was not good at all and you would have to go back all the way to 2008, the year of the financial crisis, to find a worse week.
Major gathering events such as the Mobile World Congress in Barcelona, have been cancelled. Multiple flights have been cancelled. The release of the latest James Bond film was delayed by over 6 months. People are frequently cancelling their vacations and worse: not booking more. This is a very dangerous situation that is hurting the market. It generates a loss in many ways because hotel rooms are unoccupied, restaurants do not have people to serve, deals are left undone and so on. This is why a health crisis like the one we are in is so dangerous for the market.
Could it be a crisis such as the 2008 one or 1929? Some certainly believe so - going as far as saying that this situation will be worse than the fall of the Lehman Brothers in 2008. Others present the fact that China is the producer of 90% of the world's goods and to find them stopping work because of this virus is going to hurt prices and to find some alternatives is not easy. My opinion is that… well, no. It will not become a crash. As the death rate continuous to, well, not rise, the market will eventually calm down, we hope. All in all, it is way too early to call but it is very unlikely to have the stock market to drop that much, especially when it was on a very big high, with indexes such as the S&P500 or the DOW30 achieving all-time-highs almost every week a couple of weeks ago. This is something that is now affecting Trump's baby, the stock market, but he will want to continue to have the bragging rights to say that the market was never better with the Presidential Election coming up.
Taking the companies that are making it through during this crisis, Netflix or Novava are gaining in these last few days because one company's motto, Netflix, is literally "Netflix and chill", therefore, gaining when you are at home and not active. The other, Novava, is reportedly researching a cure for the virus. The biggest losers are companies that make you go out in the world or imply that you will be with human contact for a long time such as Airlines, Hotels or Uber.
I did mention the US election before and now I will explain how it might affect them (spoiler alert: it does not). The elections are in November and it could absolutely be used as a Democrat argument to say that Trump did not do everything to his power to control the crisis, both financially and in terms of healthcare. Although it might be used, I disagree that it will take much attention from the public because, if my predictions are correct, by November the virus will not be talked about as the markets will have cooled down and people will be realising that the death risk is very low. Combine that with the progress that I am sure will be done by that time in terms of getting a vaccine will make Coronavirus a non-issue.
Now one thing is clear: the media attention given to Coronavirus only makes the crisis, both financial and healthcare, worst. The panic mode that people get into by going out and buying masks has led to multiple countries having run out, such as such as Portugal or Italy does no good. Furthermore, these masks have been proven to be of little use. Italy, for example, is now starting to run out of food because its citizens have decided to buy unnecessary quantities of food, fearing that it could run out. This is the type of irresponsible behaviour that we should avoid at any cost.
Don’t get me wrong, having two of the (now) biggest 3 countries in a stagnation economically (Germany) or in an actual recession does not help. It is also very clear that the economy is a circle and we have been crisis-free for an unusual amount of years now. However, these irresponsible acts such as going out and buying everything in sight, will absolutely turn this situation, that is still very much in our control, south.