The signs are in for a deep and sustained fall in stocks over the next couple of months as the US grapples with growing fear over the long-term effects of the new coronavirus. Investors who bought the dip on Tuesday’s huge slide in the expectation of a reversal the following day were greeted with another slate of numbers diving further into the red.
Panic has set in across Wall Street. The Dow Jones Industrial Average fell by 1,031 points on Tuesday, or 3.6%, and 838 points on Wednesday, or 3.1%. It’s the worst two-day slide in four years. US futures suggest the American bellweather will open 960 points or more lower today. In the UK, the FTSE 100 has fallen under 7,000 for the first time since January 2019.
US coronavirus outbreak ‘inevitable’
A coronavirus outbreak in the United States is now inevitable, a top public health official said on Tuesday.
“It’s not a question of if, but rather a question of when and how many people in this country will have a severe illness,” said Nancy Messonnier. She is a director of the National Centre for Immunization and Respiratory Diseases, part of the Centre for Disease Control and Prevention.
“Ultimately, we will see community spread in this country,” she said. “Now is the time for hospitals, schools and everyday people to begin preparing as well.”
Concerns are growing that the outbreak could become a full-blown pandemic. While the World Health Organization has thus far resisted this label, when North and South America starts to see significant spread, this could become a reality quicker than we think.
Covid-19 is difficult to detect, has a disproportionately fatal effect on the elderly, and can be transmitted to large groups of people even by those who do not show any outward symptoms.
To catch a falling knife
Scott Minerd, a macroeconomic commentator and chief investment officer at the influential Guggenheim Partners, tweeted on Tuesday evening that: “This is not a buy the dip market. It’s a don’t catch a falling knife market.”
Speaking to CNN he warned that there was a severe downside risk in the near term with as much as a 20% selloff from recent highs. Minerd has been warning since early 2019 that a recession was on the cards.
In a 13 February 2020 piece, he outlined his thoughts on how coronavirus exposed the underlying weakness in global trading: “In the markets today, yields are low, spreads are tight, and risk assets are priced to perfection, but everywhere you look there are red flags. The latest red flag is the coronavirus.”
His thoughts were echoed by economist Mohamed El-Erian, chief investment officer for Allianz in a Tuesday interview with CNBC. “I would say continue to resist, as hard as that is, to simply buy the dip because it has worked in the past.”
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