When will markets return to normal?

The most important message at the moment is to stay safe and do what you can as an individual to help others in our community in the Cayman Islands when and where you can.

If this supplement to the Cayman Compass had been published in February this article would have been materially different than it is here in the middle of March. Governments and communities around the world are taking unprecedented steps to mitigate the impacts of the novel coronavirus or Covid-19. The tremendous threat to the health of people around the world is reflected in global financial markets, which at the time of writing are struggling to deal with the current state of the world and reflect what the future will hold. Many companies and their employees around the world and here in the Cayman Islands are wondering what if anything will save them from the financial effects of Covid-19. Governments are committing all that they can to support their economies and there are signs coming from Asia that there will be a way forward once the worst of the virus passes. Unfortunately, things in the U.K., Europe, North America and here in the Cayman Islands may very well get worse before they get better.

Looking ahead there will come a time when the health impact and the corresponding financial market losses begin to decrease. In the interim, some traders may stay active in financial markets where they see opportunity, while investors may take defensive measures or simply move to the sidelines until they are comfortable with the risk again. We also see opportunity for investors to buy shares in solid companies that they always wanted; now would be a good time to take a look at names you have been interested in such as Amazon (AMZN), Starbucks (SBUX), Google (Alphabet trades as GOOG) or Tesla (TSLA) and Twitter (TWTR).

We have not had a global pandemic of this nature since the 1918 Spanish flu. It is difficult to draw financial market parallel with that time, but we do have more recent crisis moments to look back on.

On 4 Feb, 1994, as the United States emerged from recession the Federal Reserve surprised markets with the first interest rate increase in five years moving from 3.00% to 3.25% and then continued raising rates during the following months. This led to the “1994 Bond Massacre”, the bankruptcy of Orange County and contributed to financial crisis in Mexico and Argentina. By comparison, central bank interest rates are now close to zero for the most part.

In the late 1990s we suffered through the Asian Financial Crisis (1997), the Russian Financial Crisis and Long Term Capital Management (1998). This was followed by the bursting of the Dot.Com Bubble in 2000 and the 2008 Global Financial Crisis.

The lesson from these is that societies and the global economy eventually recover from financial shocks. Once or perhaps even before the coronavirus appears to be under control, markets will find a bottom and consolidate around new levels of support.

Tradeview Markets strongly believes that going forward investors should continue to invest in stocks, especially those investors below the age of 50 who will most likely have a time horizon in excess of 25 years. This allows market dislocation to fade over time and returns to compound. Looking back to 23 March, 2015 the S&P 500 index closed at 2,104.42. We may have given up several years of returns recently but once the market stabilises you may be looking at the opportunity for a much better entry point into some of your favourite stocks.

Controlling transaction costs and fees is also of vital importance. Self-directed investing using an online brokerage account is one of the best ways to minimise the costs involved in investing or trading. The impact of even an additional 0.9% cost over time on a portfolio is significant as it can amount to over six figures during the average investors’ lifetime.

Finally, if you want to take a view on trading during this volatility in financial markets, Spot FX (foreign exchange) provides an opportunity to trade the market based on your expectation of how one country’s currency will do compared to another.

At Tradeview we ask that you stay safe, please look after yourself and each other during these trying times.

This article was written by J. Paul Meyer, Tradeview Cayman, with contributions from the Tradeview team.

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