U.S. markets were in free fall today and the selling gathered momentum into the close, as California announced that it was monitoring 8,400 people for potential coronavirus infections. The DJIA was down 4.4% or 1190 points, its biggest one-day point decline in history. Keep in mind, it’s the percentage, not the points, that matters. The S&P 500 and the Nasdaq also fell 4.4% and 4.6%, respectively. Both the Dow and the S&P 500 had their worst daily percentage loss since February 2018 while the Nasdaq posted its biggest one-day loss since August 2011. All three major indexes entered what is known as a “correction“, a term meaning a 10% drop from recent highs. Let’s not forget, those recent record highs were just two weeks ago, but the uncertainty around the continuing spread of the coronavirus has put the fear into investors’ psyches, and they are bailing out of stocks as fast as they can.
The yield on the 10-year and the 30-year U.S Treasurys hit record lows as they have become the safe haven of choice for many investors. Oil prices slid another 5%, deeper into bear market territory, falling to their lowest levels in more than a year. The CBOE Volatility Index (VIX), commonly referred to as the “fear index”, rose by 42.1% today.
How deep and how long this correction will be is also a great unknown, but here is some perspective from the most recent U.S. stock market corrections and bear markets since 1970.
Goldman Sachs, which is typically one of the more bullish of the Wall Street investment banks, has made a very bearish call on profit growth for the S&P 500 for 2020. In fact, the bank says that if COVID-19 (coronavirus), continues to spread, it could wipe out all aggregate profit growth for the S&P 500 in 2020. In a note to clients this morning, chief strategist David Kostin wrote, “Our reduced forecasts reflect the severe decline in Chinese economic activity in 1Q, lower end-demand for US exporters, supply chain disruption, a slowdown in US economic activity, and elevated uncertainty.”
Kostin and his team say they expect profit growth to tick up to 6% in 2021, but that seems so far away with many unknowns between here and there.
The FAAMG stocks, as they are known, which include Facebook, Apple, Amazon, Microsoft and Google, have fallen an average of 11% this week. Roughly 20% of stocks in the S&P500 are in a bear market, and with massive profit threats ahead, that number could rise.