The coronavirus is having a see-saw effect on the stock market. The S&P 500 (SPX) — the broadest measure of the stock market — finished down 1.7%, but rose 0.6% over the week. The Dow Jones also fell by 295 points.
The Nasdaq composite dropped down 1.9% but gained back 0.1% by the end of the week. Most indexes are on correction territory, which means when the stocks fall down below 10% of its peak value.
Stocks that have taken a hit pertain to the travel and tourism industry, though gold and consumer brands are steady.
Some central banks all over the world are rallying around with stimulus formulas. The US Federal Reserve came up with an emergency rate cut, it slashed interest rates by half a percentage point, which instead of reassuring the investors has further raised the panic button.
“The coronavirus poses evolving risks to economic activity,” the central bank said in a statement. It was the first such emergency rate cut after 2008.
“I don’t think anybody knows how long it will be,” the Federal Reserve bank chairman Jerome Powell said, referring to the potential economic damage coronavirus could cause. “I know the US economy is strong and we’ll get to the other side of this and return to solid growth and a solid labor market as well.”
He hoped that “it will help boost household and business confidence.”
The economists are worried that if no monetary action is taken, then the consumers will become more averse to any consumption activity like travel and outings.
Moreover, the supply chain for many consumer items has already been affected with China almost grinding to a halt.
Market analysts are not clear of the long term effect of the coronavirus on the economy. It is hoped that once the virus dissipates then the markets might bounce back. Powell said that he expects the United States to fully recover after the outbreak ends.
“However, if long-term growth—and as a result, corporate earnings—took on a lower trajectory due to the pandemic, the market impact could be felt over a much longer horizon,” writes MSCI, the investment research firm
“Disruptions in the global supply chain and decreased consumption affect companies’ earnings in the short term. Combined supply and demand shocks could lead to a severe short-term decrease in GDP growth.”
Most investors are looking towards alternative sources like the US Treasury bond. The buying has skyrocketed.
The 10-year Treasury bond yield dropped below 1% for the first time in history pursuant to the coronavirus fears.
The push and pull in the stock markets has left investors wary.
“Does coronavirus negatively impact the supply chain, cause massive demand uncertainty in the near-term around consumers/enterprises, and ultimately add a major risk profile to valuations?” asked Dan Ives, an analyst at Wedbush Securities, in a note to investors Friday morning, reports Barron. “The answer is a clear YES.”
The fears are with reports of the virus spreading to newer territory the stocks will take more significant hits in the coming months.
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