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Newswise — The stock market has recently plunged in response to a surge in coronavirus cases, but investors shouldn’t be concerned, according to faculty at Binghamton University, State University of New York.
Dan McKeever, assistant professor in the School of Management at Binghamton University, said that people shouldn’t worry about the recently plunging stock market, since it is closely tied to emotional reactions to the coronavirus.
“The stock market is supposed to reflect the value of companies, but it also reflects a lot of human emotion,” said McKeever. “In the short run, when there's big scares like the coronavirus, you'll have people reacting emotionally. There's uncertainty about how this is going to affect things like the global supply chain. China's a huge producer. They're also a major consumer. And if people are sick, they're not going to work and they're not buying things. How bad is this virus going to get? We don't really know. So because we don't know how bad the virus is going to get, investors are understandably spooked about the potential long-run consequences for the global economy, and you're seeing that with this really sharp drop, short, sharp drop in the S&P 500.”
McKeever said that every scare is a financial scare, as everything is so interconnected. If people in China are sick, they won’t go to work or spend money, which has an impact on trade worldwide.
“China is right now the world's biggest consumer of energy,” said McKeever. “So if the coronavirus is causing people to stay in their homes and not go buy things, not go to work, their consumption of energy, oil and gas, is going to slow down, which means that we can see oil prices drop. We've already seen that so far in oil futures markets today. So even though this is a health scare that you think would be unrelated to financial activity, it's everything being so heavily interconnected means that everything is a financial scare.”
McKeever said that it’s difficult to predict in the short run how stocks are going to be impacted, so it’s best to focus on investing for the long-term.
“Nobody knows how bad the coronavirus is really going to get,” said McKeever. “When people get excited or people get scared, stock prices can bounce all over the place. Your best bet is to invest for the long-run so that you're not susceptible to short-run swings in human emotion.”