Will the coronavirus affect the stock markets?

I am sure I am not alone in saying that the Internet has created a double edged sword: it can be incredibly useful, while also being incredibly dangerous. When it comes to the stock market, the double edge is pronounced as the internet can increase access to investments, reduce costs and allow us to do our own research. On the flip side, however, it causes overwhelm, confusion and emotional decisions based on the proliferation of market noise.

Over the past week alone I have read articles on the “wall of worry”, claims that the US market is overheated and will crash, and allegations that the coronavirus is causing stock markets around the world to fall.

Yet, events like the coronavirus generally have little or nothing to do with the market rising or falling.

What events such as this do represent, is an opportunity for the big end of town to create emotions in the market to force it either higher or lower. News is typically on the downside as bad news sells and also allows those influencing the market to get into stocks at cheaper prices.

Markets will always do what they will do: rise and fall over time as world economies ebb and flow. One off events are just a small speed hump in a very long journey, and while they may slow things down for a short period, they won't stop the market doing what it was going to do.

For those of you who read my reports, you will know that I have been expecting the market to find a high and fall into mid-February, which is what it is doing despite the coronavirus. Given this, I would encourage investors to spend less time focusing on market noise and more time looking at the bigger picture. If investors do this, they will make far less emotional decisions, have less stress and make more money.

What were the best and worst performing sectors this week?

Despite a very volatile week, the news is not all bad as Healthcare and Financials are slightly in positive territory while Utilities and Communication Services are only slightly in the red. As for the worst performing sectors, Materials was down over 3 per cent, as BHP and RIO fell heavily. Energy was also down over 3 per cent with Consumer Staples not far behind, down just under 3 per cent.

Looking at the top 100 stocks, the best performers include Virgin Money up nearly 6 per cent and over 70 per cent since October last year. TPG is also looking good up over 5 per cent and Janus Henderson is up over 4.5 per cent. The worst performers so far this week include Treasury Wine Estates, which fell heavily and is down over 21 per cent after a profit downgrade. Fortescue was hardest hit in the Materials sector and it is down over 9 per cent, while Oil Search and The Start Entertainment Group are both down over 6 per cent.

So what's next for the Australian share market?

It looks as though the start of the down move I was expecting has been confirmed this week but before you get too worried, let me say that it will only be short lived. I expect the market will fall into mid-February to below 6,900 points, although I am prepared for it to fall as much as 8 to 12 per cent from the recent high. If this occurs, the All Ordinaries Index could fall over the next eight weeks to just below 6,400 points.

Again, I want to remind everyone that this is a normal market movement and after the low we will see the All Ordinaries return to being bullish in 2020, with my target around 7,600 points or above.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au