No more splitting words — an investor panic has descended onto Wall Street due to an unhealthy elixir of a spreading global health crisis (coronavirus) and a seemingly clueless Washington, D.C.
And until the circumstances on those two fundamental issues reverse course, sources on the Street Yahoo Finance talk with expect the stock market to remain under extreme pressure and experience wild bouts of volatility. Welcome to the Great Market Panic of 2020.
“We look at the market right now, we are clearly going through a fear-driven panic selloff — and that happens from time to time,” Cadence Capital CEO Mike Skillman said on Yahoo Finance’s The First Trade. Skillman said the current market environment is different than the 2008-2009 financial crisis in that the fundamentals of the banking system are not at risk. So, Skillman says he is staying the course by maintaining exposure to high quality dividend stocks.
Want to know what a market panic looks like? Look at the trading action this week after a dreadful performance last week.
The Dow Jones Industrial Average crashed more than 2,000 points on Monday as coronavirus infection numbers rose globally over the weekend. A surprise decision by Saudi Arabia to raise oil production — which sent oil prices down greater than 20% in a session — also spooked investors. On Tuesday, the Dow finished higher by 1,100 points on optimism the Trump administration would announce a stimulus plan to stop the financial damage from the coronavirus.
That optimism died on the vine Tuesday night as it became clear that Trump had no formal plan to present to worried investors. In turn, the Dow cratered again on Wednesday to the tune of as much as 1,600 points in the afternoon. The Federal Reserve boosted its repo lending program to $175 billion from $150 billion amid today’s selloff — that did nothing to calm markets.
Markets will likely end the session in a bear market. If that isn’t a panicky, utterly confused market I don’t know what is.
Goldman Sachs appears to be on board with that view as well, even though it stopped short of saying so in a new market-moving note this morning. The report, titled “2020 earnings recession imperils bull market,” was littered with S&P 500 earnings estimates cuts and a reduction in Goldman’s new mid-year target of 2,450.
“Both the real economy and the financial economy are exhibiting acute signs of stress,” cautioned Goldman Sachs strategist David Kostin.
In short, investors are powerless. Go short the market, it could surge at the drop of a dime if the Trump administration gets its act together on the coronavirus fiscal response plan. Go long cheaper stocks and risk getting slaughtered as coronavirus cases in the U.S. probably spike soon as more test equipment hits and the government is slow to respond fiscally.
Powerless.
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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