The Market and the Coronavirus Pandemic: Will There Be a Bounce Back Next Week?

As of March 8, 2020, the global market faces a significant challenge with increasing infections of the coronavirus. With the exponential rise in infections, particularly in the early stages where numbers are in the hundreds, it's clear that once cases hit thousands or tens of thousands, severe measures will be implemented. These measures will inevitably hurt economic output, leading to potential recessions in heavily impacted countries and significant risk for small businesses in the United States.

Current Market Reactions and Long-Term Prospects

Many predict that the market will not make a strong bounce back in the immediate future. For recovery, several key factors must come into play. Chief among these is a decline in worldwide infection cases or a level-off in new case reporting, successful containment in infected areas, and the removal of restrictions on imports, exports, and travel. A return to normal business operations is essential for the market to recover.

From a longer-term perspective, there is optimism. With vaccines under development and general human resilience, the market remains bullish. As seen in the past, the human race's ability to adapt and find ways to minimize the impact of such pandemics will ensure sustained growth. However, for the short term, the market is likely to remain volatile as panic selling continues.

The Role of Reason and Human Behaviour in Market Recovery

The current market drop is largely driven by fears of economic impact and actual costs caused by the loss of workers and business. However, panic selling is a phenomenon unique to human behavior and does not reflect the underlying fundamentals of the economy. Even in the face of pandemics, essential goods and services will continue to be needed, and life will return to normal eventually. The panic, not the virus itself, will be responsible for the majority of economic harm.

At 62 years old, the author advises increased vigilance but also tempering fear with logic. The true threat is not the virus but the irrational panic that will affect our economy, political structure, and society as a whole. While the coronavirus is a minor threat in terms of overall mortality, the panic response represents a much greater long-term threat.

Future of the Market: Uncertainty and Resilience

Given the nature of our economic and societal structures, it is doubtful that the market will recover significantly next week. However, longer-term prospects are positive. It will take time for the public to regain confidence, and market volatility is expected to continue. Only if humans allow panic to dominate our decisions can these downturns become permanent. Fundamentals will ensure recovery but are currently overshadowed by the irrationality of market behavior.

Ultimately, the current downturn in the stock market is largely owing to panic selling, and this irrational behavior could cause more harm than the virus itself. It is a reminder of how much humans can misjudge the true risks during times of crisis.