The spread of Coronavirus globally has shaken the confidence of investors everywhere. Understanding the financial markets at a time like this is hard enough for professional traders but it’s much harder for the average investor.
Financial shifts are very worrying for regular investors. In the current pandemic, any kind of market analysis is complicated due to all the unresolved medical, epidemiological and economic issues.
Taking the long view
When the market is unstable, many regular investors prefer not to take action at all. They would rather wait until the situation calms down – and looking at any time of instability in the past shows that it always improves eventually.
World wars, recessions, gas shortages, double-digit inflation, depressions and recoveries – we’ve been through it all. The stock market has also been through corrections, rallies, bulls, bears and crashes.
If regular investors want to do something, they should review their individual stock holdings in their portfolios and look at them in terms of risk exposure and performance. This means taking time to assess what stocks helped, hurt, added to or dampened volatility.
If regular investors buy into this market, they should do so in a disciplined manner, with steady planned increments.
Stock market shifts
Early in the year, stocks didn’t respond to the looming pandemic, although the financial markets normally anticipate economic changes. It was only after Coronavirus started impacting the U.S. that the markets collapsed.
It took Federal Reserve intervention for them to make a sharp recovery at the end of March. This rise happened despite increased unemployment claims, deaths and a retracting economy.
When one of the worst periods in financial history includes a fast stock rally, it can be bewildering for investors. It’s inevitable for them to have many questions. Will the recent stock gains last? How do they deal with huge financial shifts? How long will the effects of the pandemic last?
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The bond market
It took intervention from the Federal Reserve to restore some stability to the bond market. The bond market is a primary source of income for investors, especially in times of economic turmoil when the stock market nosedives.
Riskier bonds received a hammering and prices of some of the large exchange-traded funds suffered before the Federal Reserve intervention. What generally held up well were core mutual funds holding long-term Treasuries.
The military-industrial complex
Even in a severe recession, spending on cyber warfare, planes, ships, bombs and guns continues. Companies with rich military contracts are well hedged against recession.
Investing in aerospace companies and military contractor stocks could help to provide a buffer in difficult times, if investors don’t mind supporting what they are making. However, it can be difficult to find funds that focus on them. Holding on to individual stocks is probably better than mutual funds and exchange-traded funds as these don’t concentrate enough in military stocks for investment to be efficient.