Week-In-Review: Coronavirus Hits Wall Street Hard
The market plunged last week as fear spread that the coronavirus will severely hurt the global economy and cause a recession. The weekly “bar” erased nearly 2 years of gains on Wall Street! That’s not normal and something I want to take the other side of, if we bounce. We locked in very nice gains last week and I’m ready to buy if the market rallies from here. The major indices fell over 10% from their recent highs which means they entered “correction” territory. In fact, it was the worst weekly decline since 2008 and if you just look at the action on Wall Street, it would suggest we are headed into a recession (and a bear market). Based on last week’s sell-off, I wouldn’t be surprised to see a “Black Monday” scenario unfold where we get whacked for a much larger price decline to flush out all the weak hands. If it doesn’t, and it normally doesn’t, we can easily “bounce” and regain a lot of what was lost last week.
Stocks crashed on Monday as the coronavirus continued to spread across the globe. The market began showing some signs of weakness on February 20 and 21 before Monday’s 1,000 point decline. The World Health Organization (WHO) held a press conference to address the virus. Technically, the market was very overbought and it is now pulling back to digest the recent and very rally we have seen. Since the market bottomed on December 24, 2018, the Nasdaq 100 (QQQ) vaulted a very strong 65% without a 10% pullback. So, we are way overdue for a nice pullback if not a correction to digest this move. Stocks opened higher but closed sharply lower on Tuesday after the CDC warned Americans that the coronavirus could spread quickly across the country. This sparked a lot of selling and technical damage across the entire market. Even Gold, which has been on fire recently, and is considered a “safe-haven” fell on Tuesday. On Wednesday, the market opened higher but closed mixed to mostly lower after sellers showed up and continued pounding the market. After the close, President Trump addressed the nation to try and calm people down and put Mike Pence in charge of the response. Trump also said the risk to the US “remains very low” which is a good thing! Separately, Gilead Sciences (GILD) said that it began 2 late-stage studies to test a new drug for the coronavirus. Futures fell after a report of the first US case of “unknown origin” which creates a lot of uncertainty.
Thursday & Friday Action:
On Thursday, stocks fell over 1,100 points as fear spread that the coronavirus will continue to spread and that California was monitoring 8,400 people for corona-type symptoms. That’s not a good sign. Stocks fell again on Friday as investors digested the single largest weekly decline since 2008.
Market Outlook: Coronavirus Hits Wall Street
The short-term trend is down as the major indices imploded in late February after fear spread that the coronavirus will cripple the global economy and spark a world-wide recession. Global central banks will likely throw more easy money into the mix to help “stimulate” markets. Let’s see if the patient (the market) continues to react well to all the easy money or if it has had “enough” and finally falls. As always, keep your losses small and never argue with the tape.