RALEIGH, N.C. (WNCN) – It’s called a “black swan” – a rare event with severe consequences.
And right now, COVID-19 is having a growing impact on the stock market.
Markets can be volatile but sometimes, the unanticipated happens in the form of a black swan.
“It’s something no one expects to see and changes everybody’s viewpoint,” said Professor Emma Rasiel, the director of the Duke University Financial Economics Center.
When the .com bubble popped in March 2000, and the NASDAQ collapsed 76 percent – that was a black swan event.
After 9/11, the markets were closed for seven days.
After they reopened, they experienced the biggest losses in the stock exchange’s history, where an estimated $1.4 trillion was lost.
That was a black swan event.
Now, we have COVID-19
“Coronavirus. We don’t know what it is and we don’t know what it means for the economy,” said Rasiel
Here’s what we do know:
Last week, the DOW dropped 1,191 points in one day. The losses have continued, making this the most recent black swan event.
So, what’s at the heart of this?
“We don’t know how long it’s going to go on, and that generates extremes of volatility,” explained Rasiel.
Other areas of the economy are also taking a hit.
Travel and tourism are down.
Right now, a lot of items aren’t being manufactured in China because of problems with the virus, and even those which are being manufactured aren’t being shipped.
“Consumers are buying less and companies are producing and selling less,” said Rasiel. “It’s a negative impact for the economy.”
Meanwhile, the more coronavirus stories inundate us on the Internet, TV and newspapers, the worse the markets could get.
“It makes investors fearful causing them to overreact and sell more than they need to,” said Rasiel.
So, as the markets continue to react badly to COVID-19 news—what do you need to do?
“Our advice is don’t be responsive to the short term volatility,” said Rasiel.” If you’re investing for the long run, leave it alone.”
By long run, she means 5, 10 or 15 years down the road.
What’s unknown right now is how much damage the long term effects of this latest black swan will have.
Rasiel says, if it goes on long enough, it could lead to a recession.
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