The coronavirus is marked by symptoms like fever, body aches, and a sore throat. But the financial markets are showing a different symptom, whiplash! The market’s wild day-to-day gyrations have caused alternating waves of panic selling by some and bargain buying by others.

On Friday, March 13, –  yes, Friday the 13th –  the Dow’s single-day point gain was higher than any other day in history. President Trump was so pleased that he signed copies of the day’s chart and sent it to supporters, taking a bow for his economy’s performance. The following Monday, March 16, the Dow fell 2,997 points, the largest single-day point drop in history. That’s what I mean by whiplash.

The coronavirus crisis is causing havoc on Main St. and on Wall St., and those holding positions in companies that were flying high only a month ago don’t seem to know where to turn for guidance. While businesses are being shuttered by order of state governments across the country, the coronavirus is impacting traders very differently than it is investors.

Traders vs. Investors

Everyone who buys stock has the same goal, to make a profit on capital investment. The difference between the traders and the investors is their respective horizons. Traders are deconstructing companies’ earnings reports, monitoring how much debt the company is carrying, and looking ahead to see what is coming up in the near term that can be predicted with reasonable certainty.

It’s a tough job, reading the future. It’s the astuteness of a trader’s judgment that their firms and their clients count on.

Investors, like most of us, are in another world entirely from traders. We, retail investors, study many of the same data sets as traders, and we may buy during a dip and take profits when we think we topped out. But the average investor is much more passive and is in it for the long haul.

Most investors are people who check their account balance quarterly or semi-annually. And those with 401ks managed by professionals who balance the investor’s holdings to reflect their goals and risk tolerance. What’s happening to those portfolios during the coronavirus chaos?

Coronavirus Impact on Traders

Traders live from quarter to quarter, and often from day-to-day. Their clients, or the funds they work for, hope the trader’s blend of daring and caution will produce wins. Traders live in the moment, ready to act swiftly, like a pro surfer timing his drop into the perfect wave, hoping not to get hammered. The regular market fluctuations are his bread and butter. Catching the big one is their dream, but among the market’s swells and its troughs is where traders live.

The sudden arrival of the coronavirus was a day of reckoning for many traders. Despite Wall Street’s intricately predictive infrastructure, the bottom fell out to the tune of $10 trillion of market value in one month.

At the same time, other traders who held short positions parlayed the coronavirus tornado into more than $50 billion in profits. In the week between February 24 and March 3, Bloomberg reported the total domestic equity short interest grew to $848 billion. Those traders jumped on the downturn and still hope to ride the wave for as long as it lasts.

Coronavirus Impact on Investors

The US has essentially stopped business as usual, so medical and government authorities can try to slow the coronavirus’ spread, to limit its long-term harm. Lives have been lost, and more will follow. Beyond the tragic human costs, many of the restrictions imposed to prevent widespread infection will cause further financial injury to American workers and small businesses who are not prepared for a sustained period with no income.

Investors who bought shares in stable companies, with sound fundamentals and proper management, still lost a giant slice of their pie during the past few weeks. Losses of 15% to 25% or more are frequent. More conservative portfolios may have suffered less but did not escape the knife.

Despite the current state of the investor’s holdings, and his or her loss of all profits gained over the last year or two, the quiet investor probably has time to wait out the storm. Unless someone is nearing retirement, doing nothing can be just the action to take. As painful as the account statement looks, there’s no immediate need to change. Have your long-term goals changed? If not, then the likely temporary havoc created by the coronavirus will pass.

When will the coronavirus wave subside?

But how long will it last? When will the US begin to open its doors again? When will we all be let out of our home-isolation? China’s experience with the virus may be instructive for those trying to read the tea leaves for the US economy. Though China’s economy was severely injured by the virtual stoppage of any business activity for weeks, it seems to have turned a corner. The rate of new infections has decreased, and factories are beginning to ramp up production again.

The economic damage to the US economy is already mounting, so much so that the Fed’s March 3 emergency one-half percent rate cut was followed 13 days later by a second emergency rate cut, this time to zero interest. Unlike unpredictable, disastrous events in the past, so-called Black Swans, the coronavirus may prove to be a finite episode with a relatively short duration. But if the crisis is short-lived, traders will need to position themselves to catch the next wave, and to determine who will lead with market gains.

Will it be the tech giants that carry the torch? And who among them is strong enough to absorb the coronavirus damage and still have the stamina to resume earnings growth? Traders don’t have time to wait and see. Their money is moving into the biotech firms that might be on the cusp of developing an effective vaccine, or a treatment for those already infected. Other targets of trader interest are medical supply producers like Johnson & Johnson or McKesson, whose stock is up over 18% recently.

It’s their opportunity to pick the horse they think will lead the pack, or to side with those who see a long, slow, painful recovery.

Everyone is on the same footing

The crises we’ve lived through are understood in hindsight. We know now what followed the 9/11 attacks and what economic convulsions it caused. We learned what a slippery foundation the economy was on in 2008 when the bill for sub-prime mortgages and unregulated derivatives came due. But the coronavirus is different.

Though a good number of reasonable Wall Street gurus were predicting the end of the decade-long bull market last month, others offered counter-arguments that carried equal credibility, predicting continued growth. There was no widely recognized flaw in the economy as it stood a month ago, save for what most people did see as overvaluation. But that is a normal economic phenomenon. There was no consensus that a systemic corrective action was needed to forestall an imminent crisis.

Unemployment remained at near-record lows, consumer confidence was high, and the trade war with China was resolving slowly, but steadily. The upcoming presidential election was a source of irritation to the market, but like the trade war, it seemed to be priced into valuations.

What’s changed now?

Our economy was substantially damaged by the coronavirus. No one knows just how bad the damage is, and we won’t know until it’s over. Some industries will suffer longer-term damage than others. Businesses that can’t make up lost sales will struggle, at least well into 2021, like movie theaters, cruise ships, and airlines. The lost revenue won’t be made up when the crisis passes. You won’t go to see two movies on a Saturday night to catch up or buy more plane tickets than you need.

But other industries will recover more quickly, perhaps by the third or fourth quarter of 2020. People will return to work, though some will find their former employers didn’t survive the storm. Unemployment will rise, and the demand for products will be diminished for a time. Eventually, home sales will resume, consumers will start to line up for the newest advances in technology, and the fundamentals that were a sound foundation in February will appear to be under our feet again.

The American economy did not collapse from its own illness; it was attacked again, this time by a virus.

Traders and investors will recover. We just need time to get our strength back~