Market volatility during COVID-19

Author: Huw Jones
Published: 27th March 2020

There is significant market volatility during the COVID-19 pandemic. The markets are reacting to uncertainty of the current situation with volatility. This is what we would expect. The markets will accept both bad news and good news in the same manner – by amending prices to reflect the news. Uncertainty, however, creates volatility in the market. The market is unable to know what to do with prices, so they fluctuate wildly. Until there is a consensus, the markets will remain volatile.

These unexpected events happen more regularly than you would think (every 5 years or so). They create a temporary loss in the value of assets. Only investor behaviour creates a permanent loss (by selling).

We have discussed the mix of equities and fixed income (red line and blue line) each year. We have looked at the worst case scenario (colourful virtual risk table) to prepare ourselves for times like these. Now is the time to sit tight and let the market do what it does best: reward the patient and punish everyone else.

I have prepared a brief video showing the various “bull” and “bear” markets since 1926. Take a look here.