Wall Street found the latest excuse to take profits, dropping the Dow Jones Industrials Average 950 points by midday, clearly reflecting underlying fears of a slowdown or possible recession. But while ordinary investors panic, savvy traders used the latest excuse to rein-in profits, as U.S. and global equity share prices were not sustainable. Sell-offs like today provide buying opportunities for tomorrow, unless investors believe sell-offs will accelerate, giving mutual, hedge and private equity funds more buying opportunities. International Monetary Fund [IMF] Chief Economist Gita Gopinath said markets were jittery over the spread of the coronavirus [Covid 19] but thought, sometime in April, she’d see a V-shaped curve, meaning investors would snap-back shares and drive markets upward. Gopinath estimated that Covid-19 would shave off about 0.10% of global Gross Domestic Product [GDP].
Washington-based IMF and World Bank officials aren’t too concerned about global growth in 2020, other than the temporary blip that’s shaping today’s sell-off. Chinese President Xi Jinping admitted that coronavirus was a challenge to Chinese authorities but would eventually find containment. But taking Covid-19 aside, economic slowdowns in China and Europe is real, resulting Christine Legarde, now head of the European Central Bank [ECB] to slash interest rates. Today’s 10-year Treasury note plummeted to 1.370%, the lowest on record, driving the cost to real estate loans to record lows. National Assn. of Realtors [NAR] chief economist Lawrence Yun expects real estate prices to come down in 2020, stopping short of predicting a recession in the U.S. reality market. Global market sell-offs spark fears of recession, watching investors head for the exits.
Epidemics like Covid-19, emanating from Wuhan, China, impact the global economy where so much manufacturing and tourism runs through the world’s second largest economy. China has already reported 77,192 cases of cornnavirus with 2.592 confirmed deaths, now spreading to South and North Korea, now finding its way to Northern Italy with 229 cases and six deaths. World Health Organization [WHO] officials expressed concern over the lack of containment hitting a tipping point, with the epidemic spreading to pandemic proportions. With the world economy already in slowdown, watching Covid-19 infect parts of Northern Italy sent shockwaves into world economic markets. With about 5% of the S&P 500 linked to China, the Covid-19 has the potential to disrupt global supply chains. Wall Street analysts are trying to gauge the extent of potential damage to the global economy.
WHO officials tried to calm markets by saying Covid-19 has not morphed yet into a pandemic. “What we don’t understand yet in Covid-19 are the absolute transmission dynamics,” said Michael Ryan, WHO’s director of health emergencies. “Now is the time to prepare We are in a phase of preparedness for potential pandemic,” spooking markets, dropping the Dow 1,031.40 or 3.56%, the biggest one-day drop in two years. Whether the virus slows down soon is anyone’s guess. Judging by WHO officials’ statements, there’s no end or slowdown in sight, causing quakes in U.S., European and Asian financial markets. “There is no guarantee that this will die off in the summer,” said Chris Meekins, global stock analyst at Raymond James. “This could become a global pandemic,” raising more market fears. Gold Prices rocketed up to $1,661 an ounce, watching investors flee to precious metals.
Looking at the big picture, today’s fears could easily morph into buying opportunities, getting the V-shaped rapid turnaround in equities predicted by IMF economist Gita Gopinath. Watching markets today, investors weren’t sure to continue selling or start buying, not sure when to buy on dips. With U.S. markets over-bought, with price-to-earnings rations near record highs, Wall Street knew to take profits, driving down share prices. Talk of the Dow 30,000 has to wait for now, as investors stay on the sidelines to see if buying starts tomorrow or the next day. One thing’s for sure, today’s sell-off won’t last too long, as major funds reposition portfolios. With the S&P losing 111.86 points or 3.35% and Nasdaq Composite dropping 355.31 points or 3.71%, the sell-off war broad-based, hurting hospitality and transportation stocks most. Investors wait to see what happens next.
Sweeping over U.S., European and Asian markets, the coronavirus shows no signs of disappearing anytime soon. “This week and next week is going to be very crucial for determining how successful the world has been in containing the virus and implications of that,” Gopinath said. “There is a scenario where all the hit takes place in the first quarter and by April, like a V-shape, China is back to normal,” giving a hint that the market sell-off could go on for a while. Getting back to business-as-usual won’t be easy for China anytime soon, still recovering from U.S. sanctions and tariffs. Coronavirus cases spreading to Italy provides no reassurance to world markets, adding to fears of a global pandemic. “The epidemiology surrounding this is still unclear,” Gopinath said, reminding investors that the worst is yet to come. More market sell-offs could push the global economy into recession.
