Stocks fell again Wednesday, after having stated the day higher, as the market continues to be fearful about the economic impact of the coronavirus.
The S&P 500 began the day up as much as 1.5%, with the other two major U.S indexes up as well. By late morning, those gains had moderated, but that was even before the ultimate nail in the coffin for the market Wednesday.
In the early afternoon, an official from the Food and Drug Administration said at a healthcare conference that the coronavirus is on the “cusp” of becoming a pandemic. The S&P 500 ended the day down 0.38%, with the Dow Jones Industrial Average down 0.46%.
The S&P 500 is now down 8% from its all-time high it reached last week. A 10% drop from that level is technically a correction.
Some had expected stocks to bounce Wednesday after a more than 6% drop between Monday and Tuesday, as the virus spread to Italy and several Asian countries. And those who predicted that bounce weren’t wrong. The bounce was intact until the FDA official spoke. .
Conaccord Genuity's Chief Market Strategist Tony Dwyer consulted his charts dating back to 2015, which show that, when the S&P 500 loses more than 6% in a two-day span, stocks tend to bounce for a period after that.
Stocks could still bounce soon, unless the virus situation contemns to look bleaker. The volatility index sits at very high 28, which Dwyer says is one indicator stocks may soon rise again.
Aside from daily movements, the average stock on the S&P 500 now trades at 17.5 next year’s earnings, still above the 10-year average of 15. Investors had been willing to pay a premium for stocks compared to the last 10 years, as interest rates have moved considerably lower. The forward multiple had moved up to 19 when the index hit its all-time high.