eToro Compares Corona With Previous Crisis

eToro Compares Corona With Previous Crisis

Corona has caused one of the fastest sell-offs ever seen on the global market. How does this compare to other previous crisis? Well, eToro have answered that question in a new report released earlier today.  

The market behaviour since the start of the virus has caused serious concern and a mass reaction from traders. On a grand scale, it has taken just 21 days for the market to go from a peak to a bear market – a drop of 20%. This is the quickest market drop ever witnessed.

Quicker, in fact, then the Great Depression, the 2007 October crash, and all other financial crisis ever witnessed for that matter. In their new report, eToro have taken a closer look at the three key areas of the market, the S&P 500, FTSE 100 and Gold, and analysed this in comparison to other times of volatile time for the global market.

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S&P

The first metrics they analysed were that of the S&P – the index that measures the top 500 US companies and is considered a good barometer for the US economy. When the economy is in good shape, it shows positive and when it is not, it shows negative. The 10-year average for the S&P has been shown an annual return of 7.99%.

The last major issue for the S&P was the mass crash of 2008-2009, owed largely to the US Housing markets collapse. Since then, the improvement has been huge and there has been a 500% bull run that lasted 11 years. Thus, it was thriving.

Of course, that was until the last few weeks and the change of fortunes has been monumental. The market drop though is largely different to that of 2009 as, unlike then, there is no underlying financial issue that caused the crash. Instead, it from widespread market fear of the unknown and those want to cash out in fear of what might happen.

The longer-lasting impacts of CoVid “are difficult, if not impossible, to predict”. However, the result will come down to whether it can be contained. If so, eToro believes there is no reason why investor won’t quickly return to the market and pick up these cheap stocks at a low price, as they generally do after a crisis, and push the S&P back up.

Gold

Gold is considered a safe-haven and therefore when the market goes pear-shaped, people quickly move to gold as a rule of thumb. This doesn’t always happen though and as eToro pointed out this hasn’t so far happened with CoVid. This also happened in 2008. In both instances, it is due to the uncertainty.

It is due to liquidity as many traders try to turn assets into cash. Currently, this is a similar thing that central banks are doing and “pumping additional liquidity into global economies to keep them ticking over”.

eToro believes that once the crisis is over and the numbers decrease, then people will likely flock back to gold. Currently, cash is king as the fiat currencies are suffering.

FTSE 100

The UK’s largest 100 companies on the stock market are currently down by 34% since the start of this year. Such drops have not been seen since the Brexit Referendum of 2016. Then, like now, the reason is uncertainty.

At this time, in the same way as the S&P, investors soon returned to these oversold stocks and everything recovered. This was just the latest in a long line of market drops that the FTSE 100 has suffered in the last 10 years alone. It is eToro’s belief that “the market is resilient “and permitting things go back to normal and CoVid doesn’t last for much longer then recovery is likely.

eToro also notes that while the red is scary, “more experienced investors, those who have lived through previous periods of market volatility, may take advantage of the opportunities this sell-off offers. The best prices come at the worst times”

You can read the full guide at eToro!

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