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Wall Street Sinks and the Dow Jones Loses 9.99% Due to the Coronavirus

Wall Street Sinks and the Dow Jones Loses 9.99% Due to the Coronavirus

The spectacular and unprecedented Bull Market is officially over as of yesterday. It was one heck of an 11 years – longest Bull run in history. Thursday March 12th the Dow dropped 2,352.60 points (-9.99%). It was exactly one month ago on Feb 12th that it had reached a new all-time high.

But with fears of Coronavirus (COVID-19) spreading faster than the virus itself the impact on the markets have been dramatic and swift. On Thursday March 12th 2020 all of the following happened.

  • The Dow Jones (30 of the biggest and most powerful companies in the USA) lost 9.99%. Every single one of arguably the best 30 companies in America lost ground without exception. From United Technologies losing 4.66% to Boeing being down over 18%.
  • The S&P500 (the top 500 large cap stocks) dropped 260.74 points (-9.51%) to 2,480.64. About a month ago it was 3,380.
  • The NASDAQ composite (comprising mostly technology companies) lost 750.025 points (9.43%).
  • Russell 2000 (small cap stocks. Pretty much the opposite of the S&P500) lost 11.18%
  • VIX (the Chicago Board Options Exchange volatility index) gained 21.57 points to 75.47. The VIX is a proxy measurement for uncertainty. This was a 40.02% gain IN ONE DAY! An all time high. For an index that usually wavers between 10 and 20, being over 75 is ridiculous and indicative of the all-consuming fear on Wall Street.
  • Surprisingly, even Gold is down slightly from its highs at $1,578.60 whereas last weekend it was flirting with $1700.

The definition of a correction is for a market to be off 10% from its most recent highs. As you can see the “correction” almost happened in a single day. The definition of a Bear Market is being 20% off its most recent high, and we are now firmly in that territory for the first time in 11 years. The markets hate uncertainty even more than bad news which is why the VIX is so terribly high.

Wall Street Sinks and the Dow Jones Loses 9.99% Due to the Coronavirus

“More so than the health effects, investors are watching for how long the supply chain and corporate earnings will be affected. Will it just be one quarter or even two quarters? You don’t know, and that causes uncertainty”, Saluzzi said.

All this dramatic negative movement occurred after the markets had made a small push to recover slightly earlier in the week based on the federal government (in the form of the central bank) promising to inject an additional tens of billions of dollars into the financial system. It was a good attempt to calm the markets’ fears – but it clearly didn’t work as Thursday the markets were taken out behind the woodshed and given a terrible beating.

Looking forward, the economists at Goldman Sachs investment bank (which itself lost over 12%) wrote:

they expect the Fed to cut interest rates by 50 basis points soon, perhaps even before their next scheduled meeting March 17-18. That move would be followed by another 50-basis-point cut in the second quarter, they said, and would be part of a coordinated effort by the world’s central banks to ease policy. 

So, one might reasonably ask “is there anything that didn’t get clobbered yesterday?” Oil rose slightly after being down most of the year. This is a typical response to uncertainty and fear. People start stockpiling because they don’t know what is coming. I would expect that gold will make a recovery over the coming weeks as traditionally gold is seen as a safe haven when times are tough (or uncertain).

Real estate cannot be lost or stolen

I am reminded of a fabulous quote from Franklin D. Roosevelt:

“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full and managed with reasonable care, it is about the safest investment in the world”.

He is correct. The intrinsic value of real estate should remain the same whether someone has the flu or not. Beautiful waterfront property is still beautiful. The rent or mortgage still has to be paid. Real estate should hold its’ value. It may fluctuate slightly over irrational fears but it will never drop to zero. And if the Fed does drop interest rates aggressively it will mean that taking out a mortgage or borrowing money will be cheaper than ever before.

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