Virus Fallout Drags Stocks in Long Plummet to the Bottom

MANHATTAN (CN) — Investors hoping to put the horrid first quarter of 2020 behind them face the potential of an even worse second quarter, as markets closed Wednesday on a sour note. 

Futures indicated early that the day would be mixed at best, but a late-afternoon sell-off caused the Dow Jones Industrial Average to slump 973 points. The Dow is down 8,600 points since its high point of 29,551 points on Feb. 12.

President Donald Trump listens during a Tuesday briefing about the coronavirus.
(AP Photo/Alex Brandon)

Showings were poor as well for the S&P 500 and Nasdaq, which have had similarly abysmal first quarters, each falling nearly 5% this afternoon. 

Wednesday’s poor showing follows one of the worst — and most volatile — quarters on Wall Street, and some experts are now pinning their hopes for a better Q2 on any news that will boost consumer confidence.

According to a survey released Tuesday by The Conference Board, consumer confidence dropped last month to its lowest point since July 2017. 

“March’s decline in confidence is more in line with a severe contraction — rather than a temporary shock — and further declines are sure to follow,” said Lynn Franco, the board’s senior director of economic indicators.

As state and federal officials extend social-distancing guidelines, following the advice of scientific and health care professionals, experts say consumer confidence is likely to keep shrinking. 

“Back in 2008, you could still go out to dinner even when the market crashed,” Villanova University finance professor Michael Pagano said, noting the Great Recession was a banking-related recession, while this is one driven by health care.

“Look at China … the Chinese are not flocking back to restaurants yet,” Pagano said, adding that Chinese consumer confidence hasn’t gone back to normal even as manufacturing has begun to return after the country reported fewer cases of Covid-19.

Other experts similarly warn of a bottom still to come. “We haven’t seen the lows yet,” said Goldman Sachs’ chief equity analyst Peter Oppenheimer in an online investor message. He noted the current downturn is event-driven, and those downturns tend to return within 15 months.

“Although we expect the lows to perhaps to be lower on average, we do also expect to see a very strong rebound in corporate profits and stock prices as we go into the latter part of this year [and] next year,” Oppenheimer said.

Goldman Sachs released an analyst report Tuesday forecasting that actions by the Federal Reserve and by lawmakers will spur what is known as a V-recovery, despite a sharp increase in unemployment. The report predicts the economic bottom likely won’t hit until after the second half of the year.

“Both monetary and fiscal policy are easing dramatically further, which will tend to contain these second-round effects and add growth down the road,” the report states. 

A Phase IV stimulus is now in discussion by lawmakers, and President Trump has joined the chorus calling for an additional $2 trillion on infrastructure to bolster last week’s $2.2 trillion package. Lawmakers are on recess until April 20.

Confirmed cases of Covid-19, the disease caused by the new strain of coronavirus, have more than doubled in the last week. The virus has affected about 887,000 and killed more than 44,000 worldwide, according to data compiled by Johns Hopkins University.

So far, about 190,000 in the United States have been infected by the virus, while 4,100 have died.

Those numbers are likely to increase as testing becomes more widespread, and the administration’s leading infectious-disease experts have suggested 100,000 to 200,000 Americans dying from the disease could be a best-case scenario at this point.

Several markets in Asia markets also saw drastic downturns following the grim outlook given by U.S. officials on Tuesday. Japan’s Nikkei dropped 4.5% on Wednesday, while South Korea’s KOSPI 200 fell by nearly 4%.

The lone bright spot on the globe was Australia, whose ASX 200 lately has been up when other Asian markets are down, and down when those markets are up. The ASX closed 3.5% higher on Wednesday.

Markets in Europe also took a bath, with 3% to 4% losses across the board. The pan-European Stoxx 600 fell 2.9% after lenders in the United Kingdom followed the European Central Bank’s lead and advised companies to halt future dividends.

President Trump said Wednesday that the next two to three weeks will be “very tough,” both in terms of the economy and in terms of the nation’s health. 

“As a nation, we face a difficult few weeks as we approach that really important day when we’re going to see things get better all of a sudden,” Trump said.

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