Does Last Week Stock Market Sell-off A Warning Sign Of More Distress To Come?

If anyone has been watching the news lately, the world markets have been crashing caused by the widespread effects of Coronavirus COVID 19. World Health Organization (WHO) has raised the global risk assessment “very high” but still has not declared COVID -19 a pandemic.

As of today, 02/03/2020 according to worldmeters statistics there are already 90,933 cases reported, 3119 deaths, and 76 countries affected.

In 2019, Many analysts forecast that recession may occur in 2020 due to rising unemployment, high inflation, and slowing gross domestic product. Additionally, many thoughts that the ongoing trade wars between US and China if unresolved will drive the economy into recession.

Little that we know that Coronavirus COVID – 19 troubled the world markets at such a quick pace last week that we experienced a sharp downward trend flirting into a correction territory. The news led to a panic mode that sent the market into a sell off last week.

Do we know if the market has bottomed out already? 

Probably not! Experts think that there is a glimmer of hope in countries of the northern hemisphere as we are now heading spring and with warmer weather that cases may slow down. Unfortunately, the southern hemisphere is nearing winter conditions so we still don’t know if the virus will continue to affect these countries too. 

If the virus is not contained and continue to spread and claim lives of more people, we might see that the market will continue to slide in the coming weeks or months that might trigger a global recession.

What does a bear market or recession mean to long term dividend investors?

We may not still be in a recession right now and the market may not bottom out yet. When the market is down – most share prices of great companies come at a bargain.

Long term dividend investors stay invested whatever the market is doing.

Dividend investors don’t panic and a down market creates a great buying opportunity for them. They consider it an excellent time to increase their stake in such companies.

What happens during a bull market?

During a bull market – share prices of companies keep going up and as a long-term investor who stays invested, they keep buying and may have bought these companies at a premium price.

The difference is value investors who diversify are always on a lookout on undervalued companies even in a bull market. They still find good bargains even if the market is on an upward trend.

What happens to dividends during bear markets and recessions?

Dividends are paid out of cash flow. During an economic downturn most company earnings and profits also decline. The likelihood of cutting dividends can also happen. 

However, great companies will continue to declare dividends and it’s the last thing that they will do to their shareholders – cut dividends. 

Solid companies understand its ramifications to their business. Instead, they will try to find other measures, and they will restructure their finances in order to continue to offer dividends to their shareholders. Suspending and slashing dividends are often a signal of financial stress and reduces confidence in the business.

Past performance does not guarantee future results!

With this in mind, exercising due diligence is a very important aspect in investing whether it’s short, medium or long haul. A market crash has no bearing on the emotional decisions of long term dividend investors. They simply add more shares to their equities which comes at a cheaper price.

My Final Thoughts

In Summary, stock markets are cyclical in nature. It goes up and down and there is no sense of worrying – as no one can predict when it’s going to happen. Now and then, we will hear news that will have impact to the global markets just like Coronavirus COVID -19.

Nevertheless, long term dividend investors don’t panic. They stay invested whatever the market is doing. As a result, a bear market or recession is an excellent buy opportunity. 


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