Coronavirus Raises Fear Index, with Situation Worse Than in 2008
The fear index as measured by the Cboe Volatility Index has risen with the global pandemic of coronavirus. The situation is worse than the crisis of 2008.
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The fear index of the stock market shows how the market was shaken by the crisis caused by the coronavirus epidemic, unlike the 2008 crisis. Despite features such as direct market access trading offered by online broker dealers, you need to study the market to ensure you make the right decisions. Just how volatile the markets were can be realized by a look at the Cboe Volatility Index (VIX) that enjoyed a year-to-date return of close to 300% as it struck its peak point during Tuesday. Volatility Is Worse Than in 2008 MarketWatch reports that on Monday, March 9, the index touched its greatest intraday level since 2008. Monday was also the day when the stock market experienced the worst single day plunge in 12 years for all the three major indices – the Dow Jones (DJIA), the Nasdaq Composite Index (COMP) and the S&P 500 (SPX). Even more striking was the year-to-date surge of the VIX thus far. That has significantly outstripped the volatility experienced during the 2008 crisis. The VIX thus far is heading for a massive 280% surge, while in 2008 it was just a 108% return. As you would probably remember, 2008 was when obscure mortgage bonds as well as derivatives started proliferating globally, causing financial markets to struggle and bring about recession. Coronavirus Easily Pinpointed as Cause for Volatility The VIX rising is taken as an indication of stocks declining since the index is used for hedging equity positions. This time the major factor is the outbreak of COVID-19 coronavirus which, though originated in China, has spread beyond the borders of the country to nations as far from it as Italy, Iran and the United States. As of March 11, 2020, the epidemic has claimed 4,260 lives and sickened around 117,000 people. The global implosion of financial markets back in 2008 pales in comparison to the fear and uncertainty coronavirus has managed to generate. A prominent options analyst reckons that the period of volatility could continue “for the foreseeable future�. Chinese Economy Improves as New Coronavirus Cases Reduce But along with such news of gloom comes a ray of hope in the form of news that the number of new coronavirus cases in China is significantly reducing. On Tuesday, March 10, there were only 19 fresh cases in the whole of China. 17 of these were from Wuhan. Just a month back the country was grappling with rocketing numbers of cases. But that has declined significantly, so much so that the city of Wuhan has closed most of the temporary hospitals it had set up to accommodate coronavirus patients.
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The Chinese economy is also reported to be getting back to normal as companies are getting back to full operation. These include giants such as the Cainiao package delivery section and Ele.me food delivery wing of ecommerce giant Alibaba ($BABA). CNBC reports that Apple ($AAPL) has reopened most of its Chinese stores, with the company’s production facilities back up to 50% capacity. Apple expects the facilities to return to full capacity by month end. JD.com ($JD) has had a strong quarter and is expecting to grow sales by 10% at least year over year in the quarter that has witnessed much of the country in slowdown mode. While the overall mood is that of gloom, with the WHO declaring coronavirus as a global pandemic, it is important not to make hasty or emotional decisions. That is the key to successful stock trading.
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