The virus has infected more than just humans. It’s no secret that the COVID-19 airborne virus, that most people know as the coronavirus, has infected the U.S. stock market with fear and uncertainty, sending stock values on record-setting declines last week.
In fact, fear over the spread of the virus kick-started the worst week for the stock market since 2008. Fresh off of record-setting highs, the Dow dropped over 3,500 points, shedding nearly $3.6 trillion in value.
Truthfully, it was no real surprise. The news media continues to build a climate of fear by repeatedly hammering infection numbers and the death toll, using terms like “outbreak” and “pandemic”, reporting on Americans flocking to stores to stockpile groceries like bottled water and bread, leaving a bunch of empty shelves in their wake.
This fear cripples the market. Markets don’t like uncertainty.
And, most investors felt the shock. Market fears over the virus have hit certain industries harder than others, but nearly all sectors saw a drop in value.
But, you might be surprised to know that the market's reaction to the coronavirus isn't all bad, and smart investors are positioning themselves to exploit new opportunities.
Here are three ways the coronavirus will affect your stock portfolio.
Three Ways (Good and Bad) the Coronavirus Will Affect Your Stock Portfolio
Fear over the spread of the virus has affected most of our stock portfolios but believe it or not, the effects are not always bad. Smart investors use these types of environments to take a closer look at their investment strategy and tweak them where ever it makes sense.
Here are three ways the coronavirus will affect your stocks and how you can take advantage of your investment opportunities in an uncertain market.
A widespread temporary drop
First, and perhaps most obvious, we are all affected by a wide-ranging drop in stock portfolios. The ripple effect of coronavirus fears sent shockwaves throughout Wall Street last week and blanketed almost every industry with fear and doubt, and those conditions are ripe for steep, but often temporary, losses.
Remember that smart investors invest for the long haul. Steep drops should not automatically be a cause for panic or selling of your personal portfolio. After all, on Monday, the Dow jumped over 1,300 points, wiping away a good portion of last week’s sell-off.
Instead, use this drop as an opportunity to keep yourself honest. After months of record-breaking stock market increases, investors – especially younger investors, may have forgotten that the market ebbs and flows.
The market isn’t always up.
This is your chance to knock yourself back into reality. Double-check your diversification. Talk to a financial advisor about opportunities to buy. And, understand that, despite the last several years of near constant growth, stock market investments are still inherently risky.
Many businesses have eliminated or reduced employee travel in the hopes of stopping the spread of the virus. As a result, the demand for fuel around the world has decreased significantly, which has sent the price of oil down.
The plummeting price of oil spurred losses throughout the Gulf region. Saudi Aramco closed last week 2.1% lower. West Texas Intermediate sunk more than 15%. Kuwait halted trading for large companies after shedding almost 11% of its value.
Take a close look at oil in your portfolio and diversify if it makes sense. Or if you’re not currently invested in the energy sector, this may be an opportunity to buy.
But, here’s what not to do: Don’t be fear-driven. This is an opportunity to re-evaluate your portfolio, talk to a financial advisor, and make changes – not to bail out entirely on certain sectors or over-commit by reducing your overall diversification.
Opportunities to buy up cheaper stocks in oil and manufacturing could be right around the corner as they begin recovering from the gut-punch of last week’s sell-off. And, pay attention to stocks like Clorox and Moderna, Inc, too, as people around the world suddenly begin to prioritize cleanliness and vaccines.
However, resist the temptation to over-buy at this juncture. We are still relatively early in the coronavirus effect and it’s very tough to predict how fears over its spread will influence stock market values in the future.
Things to remember: The coronavirus isn’t yet contained in the United States and elsewhere. And in an election year in the U.S., emotions run high and investors tend to pull back during periods of uncertainty and a possible changing-of-the-guard.
It might be wise to tread lightly, but be ready for opportunities to scoop up cheap stocks, and these opportunities might include alternative investments.
Are You a Successful Investor?
Successful investors use all opportunities to think about their portfolios and re-evaluate their options, and that includes the market's reaction to the coronavirus. They don’t let their emotions run rampant. Instead, they use uncertainty and fear to exploit under-valued stocks or unbalanced diversification.
There are still a lot of unknowns about the coronavirus and how it will affect health and the stock market in the future. The best thing to do is to pay attention, talk to a trusted financial advisor and exploit opportunities when they appear.
And, continue thinking long-term.
Steve Adcock is an early retiree who writes about mental toughness, financial independence and how to get the most out of your life and career. As a regular contributor to The Ladders, CBS MarketWatch and CNBC, Adcock maintains a rare and exclusive voice as a career expert, consistently offering actionable counseling to thousands of readers who want to level-up their lives, careers, and freedom. Adcock's main areas of coverage include money, personal finance, lifestyle, and digital nomad advice. Steve lives in a 100% off-grid solar home in the middle of the Arizona desert and writes on his own website at SteveAdcock.us.