Around the world, various governments have embarked on quantitative easing (QE), coupled with support programmes to help alleviate the disastrous economic impact of the COVID-19 pandemic. However, QE manifests as support for financial markets, rather than for the ‘real economy’.  Notably, QE is a tool whereby the rich get richer – from rising stock prices – in the hopes that the wealth effect will see them spend money that will trickle down into the real economy. As it stands, the real economy is in dire trouble – and business profits are falling – whilst the global financial economy is in an upswing with a stock market recovery that is in full force.  Equity prices are moving upward.

Financial markets are fuelled by fear and greed. Essentially, greed drives prices up … and fear causes them to fall.   The investor’s emotional cycle:

The global outbreak of coronavirus or Covid-19, coupled with the sharp fall in oil prices, has created immense fear in the global financial markets. These are exogenous shocks which are difficult to anticipate.