Why Dow, S&P Had Worst Point Drop in History and What It Means

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The U.S. market continued to tank Thursday, a day after the WHO said the Coronavirus could penetrated the U.S. Stocks are now cheap compared to safe bonds, but the damage may not be over.

The S&P 500 — down more than 10% from its all-time high and in correction — fell 4.42% Thursday, with the Dow Jones Industrial Average also down 4.42% and the Nasdaq down 4.61%.

Investors rushed into the safe 10 year treasury, pushing the yield down to 1.28%.

Before we dive into the rest, here were the worst performers of the Dow Jones:

Microsoft  (MSFT) - Get Microsoft Corporation (MSFT) Report: -7.05%

Dow Inc  (DOW) - Get Dow, Inc. Report: -6.73%

Apple  (AAPL) - Get Apple Inc. (AAPL) Report: -6.54%

Intel INTC: -6.4%

Exxon Mobil  (XOM) - Get Exxon Mobil Corporation Report: -6.02%

As far as oil, the WTI index fell to $46 a barrel. Brent Crude fell to $50. “Beware if oil falls below $50 a barrel, which will endanger indebted oil companies,” said Jim Carney, Founder of volatility trading hedge fund, Purples Partners, before oil fell below $50.

Many oil companies have massive debt loads compared to their outlook on profits.

As for the broader market, there’s some possibility that the virus puts the U.S. into recession. Goldman Sachs strategist David Kostin said in a note that, historically, earnings per share on the S&P 500 falls by $5 for every 1 percentage point lost for U.S. GDP. 

Currently, Wall Street is looking for a vulnerable $178 EPS number for 2020 on the S&P 500.

Kostin’s charts also say if the U.S hits a mild recession, EPS could decline 10% over last year’s result.

The average forward earnings multiple on the S&P 500 is at 17 now, compared to the 18 or 19 times many think it should trade at, given low interest rates. So the S&P 500 could have a bit less than 10% to fall from current levels should that scenario come to fruition.

 

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