Global stocks and commodities continue to get routed as investors worry about how much the coronavirus will stifle business activity and corporate earnings. A number of corporate and analyst warnings have also helped drag the major indexes down. In fact, North American equities are in correction territory; after that, it’s a bear market.
Since hitting their February record highs, as of this writing, the Dow Jones Industrial Average has fallen 10.8%, to 26,363. The S&P 500 has tumbled 10.10% to 3,050. The Nasdaq has shed 11.31% of its value (8,726). And the TSX has dropped 8.0% (16,547).
All three of the big U.S. indexes are in correction territory. The TSX is on its way.
What Is a Stock Market Correction?
A stock market correction is defined as a loss of 10% or more, but less than 20%, from a recent high. All of the North American indexes hit record highs in mid-February but have been in a tailspin since then. If stocks fall more than 20% from a recent high, a stock market is said to be a bear market.
Global stock markets appear to be pricing in concerns that the coronavirus is heading toward being a pandemic. The S&P 500, Dow Jones Industrial Average, and the TSX are all where they were at the end of October. This suggests that the broader markets have priced out projected earnings growth.
It is estimated that some American companies could lose up to half of their annual revenue from China if the coronavirus extends into the summer. Which is looking more and more likely. If the coronavirus becomes even more widespread, U.S. businesses will see earnings growth flat for 2020.
The Cboe Volatility Index, or VIX, or fear index, recently jumped to 31.36—it’s highest level since December 2018. The VIX rises when stocks fall, meaning investors are fearful, and it falls when stocks rise, because investors have more confidence. Right now, investors are growing concerned the U.S. and global economy could slip into a recession.
The notion is not far-fetched. Should the coronavirus spread throughout the U.S., employees would be forced to stay home, and economic activity would most certainly come to a halt.
It’s already hitting some industries. In China, where 85% of the world’s toys are made, toy factories have delayed shipments and retailers are struggling to fill shelves.
Virtually all movie theaters in China, the world’s second largest box-office market, have been closed since January. As a result, the coronavirus has forced studios in Hollywood to postpone several film releases in China. It has also resulted in Hollywood studio’s temporarily shutting down movies that are in production.
Some analysts are saying the coronavirus is having a bigger impact on global air travel than 9/11 did and even the idea that consumer-staples stocks are a safe, defensive play, is being turned upside down.
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