The world was hit hard with the COVID-19 outbreak and many were unsure how the pandemic would affect global markets. To mitigate the spread of the virus, countries worldwide enforced social distancing and lockdown measures. Consequently, businesses in most industries suffered dramatically, as their staff were unable to work, or restricted in doing so.
The global economy thus took a detrimental blow, as there was little business left to stimulate it while the individuals suffered – they had limited to no money to purchase food and so on. For traders, this has highlighted the importance of diversifying portfolios to prevent additional losses in future crises.
Examination of past financial crises helps understanding of the present situation
The impact of coronavirus on the stock markets resulted in a 33.9% sell-off of S&P 500s as the maximum loss. Looking into the markets has allowed experts to estimate that it could take more than 693 days until a recovery period could begin. The same report noted the COVID-19 outbreak caused one of the worst unemployment crises in US history, as the figure exceeded 6.6 million. This number was up by 230,000 covering the same period in 2019. Similarly, the UK’s unemployment rate increased significantly from 3.9% to 5.2%.
With key industries stricken, traders see the benefits of diversification
Diversifying a portfolio has never been a more important topic than it is now, particularly when three of the world’s largest industries – healthcare, retail, and property – have suffered significantly. Retail saw social distancing measures force shops to close down until the pandemic had been dealt with. Similarly, as many are without their monthly income, they cannot purchase goods and services online. Without retail trade stimulating the economy, markets are collapsing with many trying to save as much money as possible.
Learning how to trade contracts for difference (CFDs) may play a role in this. CFD trading can aid traders in diversifying their portfolios. In effect, it involves opening a position at a certain price and speculating on where it will go next. Since the markets affected by COVID-19 are highly volatile, CFDs were a suitable option, as dramatic price movements result in higher margins for those correctly speculating on them.
Property and healthcare amongst worst-hit markets spelling trouble for many
COVID-19’s effect on the property markets has also taken its toll, as many are predicting house prices will likewise plummet. Real estate owners are facing catastrophic losses since prices are below the average market price. This is even worse for those who own multiple properties. Elsewhere, without income, some are unable to pay their rent or mortgage and are being threatened with eviction.
The healthcare industry is also suffering with hospitals worldwide overburdened with patients and are unable to see every person who requires assistance. Likewise, as more and more patients seek help, they need to purchase more equipment and are quickly exhausting resources.
US economy: an indicator of troubling times worldwide
To make matters worse, reports have also suggested that the US economy could plunge by an annual rate of 30% in Q2, 2020. They detailed how Morgan Stanley’s US economists reportedly told clients they estimate America’s gross domestic product will plummet at an annual rate of 30.1% between April and June. In turn, unemployment will ramp up to an average of 12.8% across the same period. This evidences how markets, and by default the economy, will continue to fall further.
Undeniably, the economic fallout of such a crisis has left many wondering how they can better position themselves, financially speaking, during similar times. This is particularly true for individuals, as catastrophic losses prevent them from conducting their everyday lives, from buying goods to paying rent or mortgages. Likewise, those who had solely invested into stocks will now see the importance of spreading risk to a particular asset class, as their stocks could have fallen considerably during the pandemic.