Investors have no idea when the coronavirus will be contained and when companies can expect to see a rebound in revenues and earnings, which will fall hard before anything else happens. Investors aren’t flinching at monetary stimulus which can’t help much from here. Fiscal stimulus is unclear still.
The Dow Jones Industrial Average fell 9.99% Thursday. A correction is known as a 10% drop from an all-time high, which the Dow was at a long time ago — or mid February. Corrections happen over a period of days or weeks usually.
The S&P 500 fell 9.51%, with the Nasdaq falling 9.43%.
The U.S.’ bull market ended Thursday, with stocks more than 25% below their all-time-highs.
The 10 year treasury yield rose to 0.87%, as investors also sold safe bonds. Usually, they buy bonds, bringing the yield lower, in times of uncertainty. The Fed is a buyer of bonds, but it’s important to note that rates could have conceivably moved higher, as they did Thursday, because almost all treasuries yield less than the federal funds rate of roughly 1%. The 30 year yield rose to 1.46%.
At midday, the selling abated and stocks moved to just a 3% loss. The Federal Reserve increased its bond purchases by $500 billion ,injecting liquidity into the banking system and keeping a lot cost of borrowing supported, as high yield credit spreads over treasuries widen.
But the market is looking past any good news — including potential fiscal stimulus — because the coronavirus’ end is nowhere in sight. Recession, to some, seems imminent.
Most bear markets precede a recession.
“We have had only two bear markets in the absence of a recession, in 1962 and 1987,” wrote Commonwealth Financial Network’s Brad McMillan in a note to reporters. “In both cases, while the downturn was sharp (as we have just experienced), the recovery was relatively quick.”
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