The S&P 500 triggered the week’s second trading halt by falling more than 7% during Thursday’s market hours.
Thursday morning started with the news that U.S. stock markets (as represented by the broad market S&P 500 index) tumbled more than 7%, once again triggering the circuit breaker that halts trading on the New York Stock Exchange for 15 minutes. Both the Dow Jones Industrial Average and S&P are technically in bear market territory, a quick reversal from the S&P’s February 19 record high, notes Chief Investment Officer Larry Adam. Fears about the spread of COVID-19 – a so-called black swan event – have suspended sports events, travel and on-campus activity at universities across the country. These black swan events are inherently unexpected, and typically prompt investors to quickly recalibrate their market expectations without the benefit of historical precedence, Adam added.
In addition, European stocks sank, as investors had hoped for a rate cut from the European Central Bank but got further stimulus measures instead, and the U.S.-Europe travel ban deepened the slide for oil prices, as well as transportation stocks. The ban applies to 26 European countries, but not to Americans seeking to return stateside. However, those citizens could be subject to extensive screening measures upon landing and possible self-quarantine.
Healthcare Analyst Chris Meekins and Washington Policy Analyst Ed Mills believe we should gain greater clarity within the next week on the likely duration and extent of the outbreak in the U.S., as well as insight into any local and federal efforts to contain the spread of the virus. The central bankers of the Federal Reserve meet again next week and expectations are that they’ll cut overnight rates another 50 basis points, Adam said.
Unfortunately, Meekins expects headlines to get worse before they get better, so it may be wise to prepare yourself for that possibility. He and other analysts are looking to see if policymakers will take quick and decisive action on fiscal stimulus and whether those actions will be enough to calm fears. They believe this will be a multistep process with targeted relief for individuals before a systemic fiscal stimulus package comes together, potentially prolonging the timeline and related volatility.
There remain a number of unknowns, including how many individuals will be affected in the states, so it’s difficult to model economic outcomes with any degree of confidence, explains Mike Gibbs, director of Equity Portfolio & Technical Strategy. Investor sentiment is likely to take a hit for the foreseeable future. Gibbs, too, is looking toward the federal government for stimulus options and clarity on the rate of infection across the country as more testing becomes available. Depending on those results, equities could already be near or at a bottom and subsequently rally. If the infection rate is higher than investors anticipated, Gibbs expects additional downside.
This level of market turbulence can be unnerving for even the most resolute investors you, so please reach out to your advisor with any questions or concerns you may have. He or she will continue to monitor the latest market and economic news and share the most relevant updates with you.
Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of Raymond James and are subject to change. There is no assurance that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The S&P 500 is an unmanaged index of 500 widely held stocks. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.
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