Stocks Drop Again - Just How Bad Is Sentiment?

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U.S. stocks fell sharply again Wednesday, as recent election trends and global monetary easing do not seem to be enough to quell investors' anxiety over the global economy. 

All three major U.S. stock indexes were down, with the S&P 500 down more than 3% at one point in the morning. After hitting almost 0.8% Tuesday, the 10 year treasury yield slipped to 0.7% Wednesday, as investors flocked to safety once again. 

One clear headwind is the continued increase in coronavirus cases, which hit 120,000 globally Wednesday. That's up from 110,000 a few days ago. 

The market's biggest fear is the spread of the virus. As for the U.S. cases are now at 1,000 and many New York schools and businesses are canceling plans and sending employees home.

But there were two clear tailwinds that investors don't think have much weight right now. 

Joe Biden won three states in the Democratic primaries Tuesday, including the key state of Michigan. That reduces the likelihood of a Bernie Sanders victory, which would likely be market negative. Last week, Biden's successes on Super Tuesday, on which he won North Carolina and Virginia, saw stocks rise the next day. 

Also, the Bank of England cut interest rates by 50 basis points to 0.25%. Investors, though, are wary that further cuts will only be marginally stimulative to economic activity, making them more prone to continuing to demand a highly premium return on stocks. Fiscal stimulus across the globe could be on the way, but those plans are in very early stages.

But sentiment remains incredibly fragile. 

Regarding the virus and the economy, "in such a fragile market environment, Donald Trump cannot afford to remain silent for too long," wrote Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank in emailed remarks to reporters. "The longer he waits, the larger the damages to stock markets could be." 

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