U.S. stocks began Friday selling off hard. Here are three things to know.
First off, the S&P 500 fell 2% Friday morning, with the Dow Jones Industrial Average and Nasdaq down 1.9% and 2%, respectively. The S&P 500 is now down 14.6% from its all-time high.
Investors continued flocking into the 10-year treasury yield, seeking safety from the carnage, as the yield fell to 1.18%. All sectors sold off, even the bond-proxy utilities group, as the Dow Jones Utilities index dropped down almost 2%.
Here are three essential facts for investors trying to wrap their heads around the mess:
Sentiment is really bad. With not much new news on the virus and the end of the disease nowhere near, investors are very fearful and strategists and investors up and down Wall Street say the panic selling is still in full swing.
We might be at peak panic levels. “We are close to the point of peak fear where previous pandemics bottomed,” said Brad McMillanchief investment officer for Commonwealth Financial Network. “In other words, this may be close to as bad as it gets.”
His chart shows that within 40 days of an initial outbreak — looking at SARS, Ebola, the Swine Flu, the Avian Flu and the coronavirus, the 10 year treasury yield fell by roughly 40 basis points. It has fallen by roughly 37 basis points so far.
The economic impact is still expected by some to be greater in China than it is for the U.S. LPL Financial thinks China’s GDP growth for the first half of 2020 will come in at 2% to 3%, down from its prior forecast of around 5%.
Activity is still expected to resume in the second half of the year, which may also include revenues gained back that was lost in the first half. LPL thinks China’s GDP will come in at 5% for the full year, versus previous estimates of 6%
LPL sees U.S. GDP growth coming down from prior estimates by as much as 0.5%, but the firm maintained its full year forecasts for 1.75% growth. Goldman Sachs strategists say every 1 percentage point of GDP loss in the U.S. historically equates to $5 of earnings per share lost on the S&P 500, so this scenario would translate to a loss of $2.50 of EPS.
That would bring the index’s 2020 EPS down to $176.5, which is, in many ways, more than reflected in the stock market.