Yesterday the Dow Jones Industrial Average Index posted the worst single day point drop in history. All the three major US indices posted over 4.4% drops at the close. The S&P fell below 3000, closing at 2,978, the Nasdaq dropped to 8,566, while the Dow fell 1,190 points to close at 25,766. All the three indices have now dropped over 10% since their recent peaks (the definition of a market correction).
The S&P 500 also breached its 200 day moving average (on the downside) officially entering bear territory. Investors are now pricing in rate cuts from the Fed which is already running out of ammunition. With rates at 1.50-1.75%, the Fed has significantly less room to cut rates than it did during previous crises.
In the UK, the FTSE 100 has also dropped 10% falling into correction territory. The major sell-off we saw yesterday can be attributed to a jump in cases in Italy and California; the mayor of California announced they have about 8,400 people under observation in California alone. Adding on to recession fears, a @goldmansachs report said that it is possible US companies will generate zero earnings this year.
Once the infected numbers in the US, UK and Germany start to increase, we very well might see a recession and markets dropping over 20%. There is a widespread consensus that despite posting their worst week since the last crisis, markets aren’t yet in panic mode. Investors have therefore been piling up Treasury Bonds. We still don’t see an opportunity to buy the market; only safe havens. .
Oil has declined due to the demand shock. Crude oil prices have been down for 6 days heading for their worst week since 2011. To keep prices elevated, Saudi Arabia has been lobbying for production cuts. This move will be appreciated by investors holding energy stocks. .
Government officials have started to take aggressive steps to minimise the virus impact. Japan has asked for all schools to be closed starting Monday while Saudi Arabia has stopped the entry of pilgrims wanting to visit Mecca. Minister’s in Iran has shown signs of catching the coronavirus themselves. President Emmanuel Macron said, “We have a crisis before us. An epidemic is on its way.”