Correction Territory, But How Will Markets Correct?

Monday, March 2, 2020

Stocks markets gave up $6 trillion in wealth last week, selling off near-all-time highs from earlier in the year on fears of the global coronavirus spreading. Workers around the world are staying home, cultural touchstones like the Louvre museum in Paris have been closed, and those looking to travel have avoided doing so to a large extent as well. This has caused forward guidance for companies across a wide spectrum of industries to slash expectations for the coming quarter and beyond.

As a result, U.S. market indexes are all currently in correction territory, meaning they are down between 10-20% from recent highs. Further, we see the 10-year treasury yield falling to its lowest levels ever, currently up from pre-market lows to 1.07% at this hour, down 23% in just the last week alone. This morning, we've seen a shift from another sell-off mindset to dipping a toe into the green. We shall see if this attitude prevails.

Market observers’ attention is now being brought to what the Fed will do about interest rates. With as 10-year looking to go sub-1% in the not-too-distant future, the very low (historically) 1.75% current Fed funds rate looks out of sync. Can we expect Fed participants to slash rates in the near future? And if so, would they choose to cut by a half-point instead of a quarter-point? Even farther? The next meeting begins two weeks from tomorrow.

That said, the Fed could take interest rates to zero and it wouldn’t take away the threat of the coronavirus.

Generally speaking, publicly traded companies are run by highly intelligent people with strong problem-solving skills. The key is in their understanding of how far-reaching their companies’ challenges lie — this will determine what strategies should be employed and for how long. Without this understanding — without generating the data that lays plain what lies ahead — there is no methodology that can be brought to bear in the recovery from this potential pandemic.

As of Sunday, the coronavirus known as COVID-19 has claimed 3044 lives globally, including 2 in the United States. Thus far, the U.S. Center for Disease Control (CDC) has reported in has tested fewer than 500 Americans, though Health & Human Services Secretary Alex Azar has said 3600 people have been tested in the U.S. so far. There are reportedly 75K testing kits now available, though many more will be necessary to get a more accurate read of how widespread the disease has gotten domestically, and how much closer the country will be to getting in under control.

Perhaps the most bedeviling aspect of the coronavirus, potentially, is its long incubation times. People who have contracted the disease may not exhibit any symptoms for up to 2 weeks or even a month, meaning their ability to spread the coronavirus without realizing it is very high. So even though testing kits are very necessary on a wide scale, in themselves they won’t be enough to completely end this viral threat, at least as far as we know today.

Mark Vickery
Senior Editor

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