Wall Street’s main stock indexes fell more than 2% on Tuesday as officials warned the coronavirus epidemic was rapidly escalating, a day after the S&P 500 and the Dow Industrials’ biggest daily decline in two years.
Investors moved into safer-seeming assets like government bonds, pushing the yield on the 10-year U.S. Treasury note to its lowest ever, amid concerns the spreading epidemic would have a significant impact on global growth.
Countries around the world need to shift their mindset to preparing for a coronavirus outbreak and be ready to respond rapidly when it arrives, said Dr. Bruce Aylward, head of the joint World Health Organization-Chinese mission on the outbreak.
U.S. Health and Human Services (HAS) Secretary Alex Azar said on Tuesday there will likely be more cases of coronavirus in the United States, and he asked a Senate subcommittee to approve $2.5 billion in funding to fight the outbreak after proposing cuts to the department’s budget.
THOMAS LEE, CO-FOUNDER & HEAD OF RESEARCH, FUNDSTRAT GLOBAL ADVISORS, NEW YORK:
“The concern about the economic ripples of coronavirus are spreading and the path of spread is still unknown. And because there are multiple outcomes, it is logical for markets to take a step back -- hence, stocks have fallen off a cliff. What may surprise investors is that the 3% sell-off we saw yesterday is probably a buyable moment. We think there is a 60%-70% probability that stocks will bottom this week, even as the coronavirus concerns linger for potentially months.
“Stocks usually bottom after a one-day 3% drop 94% of the time when the PMI is greater than 50 and the economy is not in recession. There are 47 instances since 1948 when we saw a one-day drop of markets while the U.S. is still in expansion and PMI is greater than 50. About 25% of the time, the market gains in six months are greater than 20%. Think about that -- one in four chance markets are up 20% or more in six months and 94% probability stocks are higher -- this is a very good risk/reward.”
JIM PAULSEN, CHIEF INVESTMENT STRATEGIST, THE LEUTHOLD GROUP, MINNEAPOLIS
“I think a correction was probably coming anyway, and then we got a catalyst. The other big thing in the room is that the bond market was challenging the lows. In some regards, the 30-year (Treasury yield) breaking below its all-time record low last week probably really helped precipitate this. And then the 10-year breaking there today, I think, has added to it.”
“The tagline, the storyline is coronavirus, but I’d say for traders, for investors, the real thing is the yields breaking down in the United States.”
“I think the good news is going into this, we had a lot of good data come out, particularly in the United States. Positive economic surprises, even in China, were accelerating, not decelerating. The most likely outcome is we’re going to have a growth shock, primarily in China. There will be others directly connected to it, no doubt, certainly specific companies like Apple. But I think probably in the second quarter and the third quarter, we get most of that back.”
DON ELLENBERGER, HEAD OF MULTISECTOR STRATEGIES, FEDERATED HERMES, PITTSBURGH
“It’s difficult to make arguments on buying or selling based on valuation in a market that’s driven by fear. Treasuries haven’t become just the U.S. safe haven asset but the global safe haven asset. Treasuries are the place to be for everybody, especially when you know that the dollar is going to continue to go up. It’s like a black hole sucking in liquidity all over the world because people don’t know how bad the coronavirus is going to get.
“It’s a market that’s not concerned about value right now, it’s concerned about safety. How low can the 10-year go? It’s difficult to say. We’ve printed the lowest print ever in 10 year Treasury (notes) and there’s no reason to say it can’t continue to go lower if you start to have headlines that people in NY are infected and that leads to more fear. I don’t think there’s any doubt that 10 year yields can go down well below 1 percent.”
DAVID CARTER, CHIEF INVESTMENT OFFICER, LENOX WEALTH ADVISORS, NEW YORK
“(The selloff is) clearly coronavirus driven, and we don’t expect a rebound until the spread of the virus peaks. Historically, markets always recover from these health scares (SARIS, Enola) but only after the crisis peaks. We are watching closely for signs of a peak. However, the spread to Italy suggests a peak is not near.
“The equity market was priced for perfection but the coronavirus scare is clearly a real problem, and a big blemish on perfection.”
“The equity market is off year-to-date, and it’s not about the Fed, it’s not about profits, it’s not about equity valuation multiples. It’s about the fact that if countries close their borders global trade doesn’t really work and the global economy and profit growth will suffer.”
“The Dramatic drop in bond yields suggests lots of fear. The drop in bond yields and the inversion is adding to the angst in the equity market. The Fed cannot ride to the rescue in this situation.”
DAVID KATZ, CHIEF INVESTMENT OFFICER, MATRIX ASSET ADVISORS, NEW YORK
“You sort of just have a mini panic. The CDC putting out new information, which is reasonable information, but you have people looking at yesterday where coronavirus cases started to go up in Europe and other parts of Asia and the market went down a lot and the natural assumption is, my goodness, if it comes here then it’s going to go down more. You sort of have the coronavirus selloff taking on a life of its own.”
“Generally, when you have a selloff like this, once there is a light at the end of the tunnel, the markets recover as quickly as they sell off, and we believe that that’s going to be the case this time.”
“Our expectation is there will be more bad news along with some better developments and the time to be buying stocks is in days like yesterday, days like today...
“We think that if you are waiting for better news, you are going to ultimately end up paying a batch more. As quickly as stocks come down, they recover.”
“We think that there definitely is going to be a slowdown in the global economy in the first quarter and in the U.S. economy and we think that companies will miss expectations. However, if and when there is any sort of clarity or light at the end of the tunnel, we think the market will look beyond the quarterly disappointments and look at the recovery portion.”
“The best course of action for investors is if you’re in stocks and you have a reasonable allocation, stay with that; we would not be selling into this weakness. By the same token, if you have had cash on the sidelines you are hopeful to put to work, we think this is a good opportunity to be adding into stocks here.”
CAROL SCHLEP, DEPUTY CHIEF INVESTMENT OFFICER, ABBOT DOWNING, MINNEAPOLIS
“People are pulled to the sidelines and there’s a re-evaluation of risks. They’re taking a wait and see because nobody how to accurately estimate the potential near term economic impact of coronavirus.”
“People who want to sell today don’t have anybody on the other side of the trade. We haven’t had a big pull back in the market for a very long time.”
“Markets abhor a vacuum. They hate not knowing so people are waiting to see, to give it a few days to settle.”
“When the mood is fearful and people are reticent to buy having offhand comments circulate is going to add to the aura of concern and make people step back and wait.”