How to Trade During the Coronavirus Pandemic
There’s no doubt that the socio-economic impact of Covid-19 lockdowns has been significant, with the UK city of Birmingham one of the latest regions to face the reintroduction of more stringent social distancing measures.
The same trend is prominent across the globe, creating the risk of further spikes in unemployment and economic gloom as case numbers continue to fluctuate. However, it can’t be denied that the financial markets have generally embarked on an upward trajectory through Q2 and Q3, even as the world remains on the brink of a global recession.
We’ll explore this further in the post below, while asking how investors have been able to trade successfully in such challenging conditions.
How the Markets have Fared During Coronavirus
March was a seminal period for the stock market in particular, with both the Dow Jones and the S&P 500 experiencing record highs and lows within a matter of days.
However, both markets have rallied significantly throughout the second and third financial quarters, with US stocks once again hitting an all-time high in the middle of August. In the case of the S&P 500, this index closed on a new record high last week, erasing all of its losses since February in the process.
The index has rallied by more than 50% from the aforementioned low point on March 23rd, with the bear market ending amid an exponential increase in market sentiment and opportunity.
This upward trend is even more prominent in the forex market, where there has been an approximate increase in trading volumes of up to 300% during the coronavirus pandemic.
Interestingly, this particular trend is more pronounced in developing countries, with trading accounts from Africa, Eastern Europe and Southeast Asia making up 60% of all new accounts.
This positive sentiment is being driven by various factors, including the presence of valuable stocks that have been devalued in the short-term by Covid-19. Similarly, other stocks have soared as a result of the crisis, while in the case of the foreign exchange, significant price movements have enabled investors to speculate on specific pairings and profit even in a depreciating market.
How to Trade in the Current Market Conditions
Of course, various economic stimulus packages have also piqued the interest of both equity and currency investors, with such measures boosting economic sentiment while simultaneously devaluing respective currencies against other assets.
Make no mistake; the increased likelihood of a large, $2 trillion stimulus package in the states certainly contributed to the recent surge in American stocks, while it has also helped the greenback to make increased gains against a basket of rival assets.
This is why the recent hesitation to approve a large-scale deal has caused some temporary distress in the marketplace, with Arthur Idiatulin of Tickmill pointing out sentiment could collapse if economists are proved wrong about the size and the timing of the package.
The question that remains, of course, is how can you take steps to trade the coronavirus pandemic as a fledgling investor? To begin with, you need to target markets and assets with genuine liquidity (such as currency), as this creates an agile portfolio that enables you to buy and sell freely no matter what course the market takes.
Similarly, targeting derivatives and the negate the need to assume underlying ownership of selected instruments and become burdened with depreciating assets.
From an equity perspective, we’d also recommend prioritising longer-term investments in the current climate, with economies expected to continue on an upward trend post-Covid and blue-chip stocks sure to return to their pre-pandemic value in the coming months.