- The Dow Jones Industrial Average (DJIA) plunged 760 points in a brutal free-fall.
- The rapid spread of coronavirus outside China has investors fleeing the stock market.
- Cebile Capital analysts now see a 25% pullback in stocks.
The U.S. stock suffered a disastrous open, with the Dow Jones Industrial Average (DJIA) down nearly 800 points on Monday morning.
Investors are finally taking the coronavirus seriously as the deadly virus spread rapidly in Italy and South Korea over the weekend. Speaking to CNBC, Sunaina Sinha Haldea of Cebile Capital warned a major stock market correction is now on the cards.
You’re now finally seeing [financial markets] price in the downside scenario of the economic impacts. I think you can see stocks come down 20-25% at this point from where we are today if the economic news and repercussions in the real world continue.
Bank of America strategists also weighed in, saying the chance of recession is now significantly higher.
Dow bleeds out as stock markets plunge overnight
Stock markets worldwide took an immediate hit overnight as China’s Xi Jinping said his country still didn’t have the virus under control and admitted “shortcomings” in the government’s response.
The Dow Jones plunged nearly 1,000 points when U.S. stock exchanges opened on Monday morning.
By 10:20 am ET, the Dow had recovered to 28,232.29 for a net loss of 760.12 points or 2.62%.
The S&P 500 and Nasdaq were down 2.58% and 2.97%, respectively.
World’s long stock market bull run collapses after 12 years
The 25% stock market crash that Cebile Capital anticipates may have a forerunner in Malaysia, where the world’s longest equity bull run finally ended after a jaw-dropping 12-year streak.
The FTSE Bursa Malaysia KLCI Index had never looked back after emerging from its previous bear market in 2008. Armed with a bevy of “recession-proof” stocks, the benchmark index had defied a litany of threats en route to the record high it set in April 2018.
That’s when the tide turned. Nearly two years later, the index closed 21% below its April 2018 peak, officially ending the world’s longest equity expansion on a day when stock markets around the world are suffering brutal losses.
Malaysia is plagued by a host of peculiar factors, culminating in the abrupt resignation of Prime Minister Mahathir Mohamad. But other pressures that dragged the world’s longest stock market bull run down into bear territory may sound uncomfortably familiar to investors in the West.
Chief among them? The impact of the coronavirus outbreak on the global economy.
Coronavirus reality check hits global stocks
The deadly coronavirus took a turn for the worse over the weekend with cases ramping up outside China. Italy confirmed a total of 152 cases on Monday and locked down 50,000 people in northern regions near Milan. South Korea raised its alert to the highest level after numbers shot up to 600 cases.
The economic impact of the coronavirus going global is impossible to predict. But investors are cashing out and heading for safety.
Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd., Singapore stated:
With cases of COVID-19 still rising, it is hard to tell when manufacturing will bottom, potentially setting the stage for prolonged weakness … This is a safe-haven trade – you’re getting rid of risk in your portfolio –
That flight to safe havens is happening at a blistering pace with gold up to $1,700 this morning.
Dow Jones exodus, recession bells ringing?
The stock market selloff is unnerving, but the biggest warning sign is the bond market. The 30-year Treasury yield hit a record low overnight on high demand.
Even more telling is the 10-year yield. Last week, Bank of America warned that a drop below 1.4% would be a breaking point for potential recession.
Indeed, breaking 1.4% in an on-hold context for the Fed creates a significant inversion of the curve, pushes recession signals higher.
Well, it broke overnight, falling to 1.39%.
Any stock market buying opportunities?
Despite predicting a 25% fall in stocks, Sunaina Sinha Haldea pointed to some buying opportunities around the world.
There are certain geographies that are benefiting from the coronavirus news cycle. India might be one of them, Vietnam is another, as you see supply chain diversification, as you see other economies start to look a little bit better in the light of China weakness, which is not just trade troubles but now real economy troubles and slowdown.
According to her analysis, the most bearish sectors remain travel and leisure.
[Investors will be] staying away and potential shorting leisure, travel, discretionary consumer and so on.
Coronavirus could cost global economy trillions
Even conservative estimates put the potential economic impact of the coronavirus at trillions of U.S. dollars.
Experts came up with the rough estimate by extrapolating the economic impact of the SARS outbreak in 2003.
The full impact of the latest COVID-19 outbreak on global trade, travel, healthcare and logistics is so far unknown.
With additional reporting by Josiah Wilmoth
This article was edited by Samburaj Das.
Last modified: February 24, 2020 3:22 PM UTC