Investment Updates
Coronavirus Scare Reveals The Nature Of Stock Market Risk
Published Friday, January 31, 2020 at: 7:00 AM EST
Stocks plunged on Friday on fears of the Coronavirus causing a global slowdown, but market history is loaded with such frights. The Standard & Poor's 500 performance over the course of the 128-month expansion illustrates the transitory nature of unexpectedly bad world news.
Stock prices are almost whimsical when it comes to discounting risks. While the Coronavirus is suddenly a huge concern, the threat posed by the long-term U.S. debt is arguably a far more serious risk to global growth, and yet it has not frightened stock investors. Why? The answers tell us a lot about the nature of financial market risks.
Federal spending outpaced revenues by an amount equal to 3.9% of GDP in 2018. Unchecked, this annual gap widens to 4.8% in 2029, according to the Congressional Budget Office and is forecasted to make the long-term debt soar in the next decade.
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