Stock Market Volatility Amid Coronavirus Outbreak

Since the outbreak of the coronavirus and its spread to many countries, the World Health Organization (WHO) has declared the outbreak a global health emergency. As a result of this, both the US markets and global markets have greatly suffered.

Volatility has been the order of the day for the US stock market after an index for predicting volatility, VIX Index predicted volatility in the stock market since the outbreak hit the US. VIX Index is a score based index that tracks stocks of the top US 500 companies. It measures the market’s volatility level over a period of 30 days. When it rates below 10 volatility is said to be low, and when it rates above 20 volatility is said to be high.

The VIX Index has gradually increased over the past two months. In January, it steadily built up until it hit a high of 18.32 on 30th January, and fell about 15 by the end of the day. By February 25, the VIX Index once again jumped to 26.50 out of fear that the coronavirus may spread at a faster rate. It jumped even higher to 48.3 by February 28, officially making it the highest point since the 2008 financial crisis.

Over the past weeks, volatility has rocked the stock market amid the coronavirus surge. As the case may be many recent economic changes fall are attributed to the coronavirus outbreak. Yet, concerning the market’s volatility, other contributing factors should also be considered. Factors such as:

• Overvalued stock market: Early this year, a lot of stocks were overvalued and prices higher, thus, making the stock market overvalued. As a result of this, expert investors warned that the market could slide into correction territory if the prices of the overvalued stocks continue to increase. This was as a result of certain stocks selling far above their original value based on the P/E metric.

• Upcoming elections: It is no news that the upcoming elections partly contributes to the volatility of the stock market. The super Tuesday’s election results surged the stock market, otherwise would have been the case if the results were not in favor of the market.

• Overdue recession: Since the Great Recession of 2008, the US stock market has enjoyed 11 long years of bull market. Some investors and analysts are expectant of a recession sooner or later. Recessions have become a normal part of the economy and it is almost alarming that an economy lasts for such a long time without experiencing a recession. The coronavirus outbreak may just be the factor that causes another recession.