Stock Markets Slide into Correction Amid Rising Coronavirus Concerns
Global stock markets have entered a correction phase as worries mount over the coronavirus's impact on the global economy and corporate earnings.
The Fear Index surges over 40%
Market Update
U.S. stock markets experienced a sharp decline today, accelerating toward the close after California revealed it was tracking 8,400 individuals for potential coronavirus exposure. The Dow Jones Industrial Average (DJIA) plunged 4.4%, shedding 1,190 points—the largest single-day point drop in its history. However, percentage losses are more telling than point declines. The S&P 500 and Nasdaq also dropped 4.4% and 4.6%, respectively. Both the Dow and S&P 500 recorded their worst daily percentage losses since February 2018, while the Nasdaq endured its steepest one-day decline since August 2011. All three major indices have now entered a "correction," defined as a 10% fall from recent peak levels. It's noteworthy that these record highs were set only two weeks ago, but the ongoing uncertainty about coronavirus transmission has spooked investors, prompting a rapid sell-off in equities.
Yields on 10-year and 30-year U.S. Treasury bonds dropped to historic lows as investors flocked to these safe-haven assets. Meanwhile, oil prices plunged another 5%, deepening their descent into bear market territory and hitting their lowest point in over a year. The CBOE Volatility Index (VIX), often called the "fear gauge," surged by 42.1% today.
The duration and severity of this correction remain uncertain. To provide context, here is an overview of recent U.S. stock market corrections and bear markets since 1970.
Earnings Impact
Goldman Sachs, typically bullish among Wall Street investment banks, has issued a pessimistic outlook on S&P 500 profit growth for 2020. The firm warns that if COVID-19 continues to spread, it could negate all aggregate profit growth for the S&P 500 this year. Chief strategist David Kostin noted in a client memo, "Our lowered projections reflect a sharp downturn in China's economic activity during Q1, diminished end-demand for U.S. exports, disruptions in supply chains, a slowdown in U.S. economic growth, and heightened uncertainty."
Kostin and his team anticipate a rebound in profit growth to 6% in 2021, but with many variables at play, that recovery remains uncertain.
The FAAMG group—Facebook, Apple, Amazon, Microsoft, and Google—has seen an average decline of 11% this week. Approximately 20% of S&P 500 stocks are now in bear market territory, and with looming profit risks, this figure may increase.
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