The Recent Stock Market Plunge

Friday Market Summary:

DJIA -1.39% fell by 357.28 points, approximately 1.4% to settle at 25,409.36

S&P 500 -0.82% fell by 24.54 points, approximately 0.8% to end at 2,954.22

COMP +0.01% gained less than a point to end at 8,567.37

As the coronavirus epidemic continues to surge, the stock market continues to plunge as anticipated by investors, analysts, and spectators. Within the last week of February, the stock market closed out its worst week with equities sitting deep in correction and only a few signs of a near-term recovery.

The stock market seems to be taking a roll downhill as the Dow Jones Industrial Average suffered a huge blow within the past week, one that hasn’t occurred since the 2008 financial crisis. The index fell by 357.28 (1.4%) points during the volatile trading on Friday, 27th January as a result of the uncertainty eating deep into the market. In total, the Dow Jones Industries Average fell by 3,500 points (12%) in the past week.

For the month of February, the Dow, S&P 500, and Nasdaq all fell by 10%, 8.4%, and 6.4% respectively.

Market Review of the Last Week in February

Monday, 24th February: The markets began to react to the impacts of the virus outbreak and the rising death tolls in South Korea, Italy, and Iran. What was thought to be a “China problem” soon had chances of spreading to other parts of the world. The implication was that the outbreak was soon going to become a pandemic, which is the case now. As a result of this, government officials held a G-20 meeting in Riyadh, discussing the possible impact the outbreak could have on the global economy. The S&P was the first US benchmark to fall, experiencing the worst fall since the 2008 financial crisis. This attracted the attention of analysts, economists, and governments that underestimated the impact of coronavirus on the market.

Tuesday, 25th February: The death toll increased. Markets had to extend their plunge and analysts reported new downgrades on global growth predictions. By the close of the market on Tuesday the Dow and S&P had cleared their year-to-date gains.

Wednesday, 26th February: The stocks had a really weak rebound due to the calls to buy low despite the volatility. Yet by the close of the day, the equities fell.

Thursday, 27th February: Many investors were already sensing the possible plunge of the market and Thursday experienced “the most intense selling of the week.” The virus had already spread to over 20 other countries and the US was no exemption. The panic started after the Centers for Disease Control released a warning stating that “Americans should prepare for the outbreak to spread within the US.” This was contrary to Larry Kudlow’s statement on CNBC when he stated that the US had contained the outbreak, thereby, avoiding an economic crisis. (Larry Kudlow is the Director of the White House National Economic Council). The first US case was reportedly found in a California based patient who had neither traveled to exposed areas nor come in contact with any infected persons, according to the CDC report. As a result of this, all three US indexes entered a correction, reporting a 10% drop from an all-time high since December 2018.

Friday, 28th February: At closing on Friday, the Dow was down by 1.37% but it wasn’t the only index that fell. The Nasdaq and S&P 500 also experienced volatility trading on Friday. The Nasdaq closed up by 0.01% while the S&P 500 closed down by 0.82%, falling by 10.5% and 11.5% within the whole week. The three US stock indexes closed in correction last week with a decline of at least 10% but not above 20% from a recent peak due to the coronavirus epidemic.

At the close of Friday’s market, the worst performers were the Travelers Companies which fell by 3.4%, JP Morgan Chase which fell by 4.3%, and the Boeing Company which fell by 4.4%. While the best performers for Friday’s market were Exxon Mobil which gained 3.25%, Microsoft which gained 2.42%, and Dow Inc. which gained 2.17%.

Analysts' Reports and Analysis

With respect to the recent stock plummet, the Federal Reserve Chairman, Jerome Powell briefly stated on Friday that the central bank was “closely monitoring” the outbreak as its ability to cause slow economic growth. He also stated that the “fundamentals of the US economy remain strong,” also stating that “the coronavirus poses evolving risks to economic activity.”

Many analysts and market experts have stated that the major cause driving volatility trades in the market is the uncertainty of the epidemic and full impact it could have on the market if not curbed in due time. As stated by the chief investment officer for Independent Advisor Alliance, Chris Zaccarelli, “ultimately, it is the uncertainty that is most difficult to price in, so people are selling in the advance of concrete information.” He further stated that “Based on what we know now, it remains our belief that the impact to the economy will be severe, but not enough to create a recession.” Contrary to this, Scott Minerd, a chief investment officer of Guggenheim Investments stated that the US economy would most likely trip into a recession and stock prices could fall it the coronavirus epidemic eventually becomes a pandemic.

Strategists at Bank of America also warn that there may be a possibility of the S&P 500 dropping to 20%. This would not only be detrimental to the global economy, making it the worst since the 2008 financial crisis but also, bring the US bullish market to an end after 12 years.

Other analysts like Mark Hamrick, an economic analyst at Bankrate have expressed that though the impact of the outbreak on the stock market is severe, it would soon become a memory that the market will recover from. In a statement, Hamrick stated that “As with the outbreak, we cannot be confident of the depth or duration of the market’s decline or the economic impacts in the short-term.” He later stated last Friday, that “similar to the spread of the virus we know that it will have a conclusion. It will take some time to arrive at that point.”

At the rate that the market is plunging, it would take only long-term and expert investors to hold on to the remains of the market until it regains stature once more. There are many red flags that should prompt investors to make quick decisions before the market resumes by Monday, 2nd March. A senior portfolio manager at TCW, Diane Jaffe in a brief statement stated that all she hears amidst the outbreak and market uproar “is that a lot of institutional money isn’t flowing, but that traders are buying from their own accounts… I tell investors to hang in there because this is the opportunity.”

Many analysts believe that there is still more to come and the late February “charade” was only a tip of the “iceberg.” Wall Street’s analysts are very expectant of this fact. Goldman Sachs analysts also warned that if the coronavirus continues to prevail, US firms will not be able to generate any profit growth in 2020. The reason being that the coronavirus affects every unit of production including supply chains. It also discourages demands and affects the Chinese economy. China has the second-largest global market and a hit on the Chinese economy can create ripples in the global market. Since late January, manufacturers in China have been on long-time unexpected shutdowns, uncertain of when they would resume production. As a result of this, many factories remain closed and demand has been put on a hold with no customers coming. The China National Bureau of Statistics reported a 35.7 score for manufacturers since the epidemic. According to the rating, 50 is the average score, and anything below that is seen as a decline in the manufacturing economy. Tim Cook, chief executive of Apple is one of the many CEOs that are optimistic about the Chinese economy getting back on track. He told Fox Business on Thursday that it seems like China had the epidemic under control judging from the day-by-day declining numbers.  Apple is one of the American companies that assemble a majority of its products in China. Cook further stated that about 80% of the 42 Apple stores in China have reopened as the situation is improving.

Thriving Stocks in the S&P 500 Amidst the Epidemic

It is almost no surprise that while other industries suffer the impact of the coronavirus outbreak certain industries thrive. The companies that focus on eliminating the COVID-19 are the companies that would thrive amidst the plunging market. Since the close of the market on Friday, the S&P 500 index revealed that in spite of its fall, seven of the component stocks didn’t decline. The companies include:

In order to curb the epidemic, Gilead Sciences announced that it had come up with two Phase-3 clinical studies as an approach to measure the effectiveness of its medication, the Remdesivir against coronavirus infections. Analysts like Michael Yee, a Jefferies analyst considers the possibilities of the Gilead team, however, hopeful that the financial implications would be modest. Therefore, rating Gilead as a “buy.” Regeneron Pharmaceuticals was also rated as a “buy” by another Jefferies analyst, Biren Amin who believes that there has been minimization of the company’s competitive risk on its Eylea macular degeneration therapy. This was in regard to Novartis AG’s Beovu medication safety concerns.

Coronavirus’ Impact on Other Markets

The US stock market isn’t the only market that is affected by the outbreak as oil prices also plunged within the past week causing the market to slide into bear territory. Britain’s FTSE 100 also fell by 3% while Germany’s Dax fell by 4%. Asia isn’t left out in this market plunge as Japan’s Nikkei 225 closed down 3.7%, South Korea’s KOSPI closed by 3.3%, and China’s Shanghai Composite closed down 3.7%. Here’s a breakdown of the overall performance of major global indexes within the past week:

Also, in the oil and gas industry, a barrel of oil sold below $50. By all implication, the epidemic impact could delay the global demand for oil and other major commodities. The US currently has about 256.4 million barrels of gasoline in stock, using nearly over 1.4 million barrels in the previous year. Selling below $50 per barrel, the US benchmark oil experiences a low since December 2018. In the past week, the national average of gasoline dropped by two cents, selling at $2.45 per gallon.

The gaming industry isn’t left out its annual Game Developers Conference, a major gaming event was canceled. Participating companies like Sony, Microsoft, and Facebook turned down the participation invite over coronavirus concerns.

The media is also slightly affected as seen in the cancellation of one of CBS’s shows, The Amazing Race. As of Friday, it was reported that CBS had shut down the 33rd season of “The Amazing Race,” a reality show, due to concerns of the coronavirus. It began filming in England and Scotland as of February 22, until the coronavirus outbreak spread to Italy, Australia, and some parts of Europe causing the team to put the show on hold.