The S&P 500 has fallen for the third time in four days due to renewed fears of the coronavirus’ impact on the global economy.
President Trump warned of a “painful” few months ahead as American growth and production grinds to a halt in a bid to slow the spread of the pandemic.
Thirty-five states have already enacted non-essential business closures, with more to follow in the coming days.
February was a record month in equity losses, down over 34%. We then experienced a strong rally driven by unprecedented fiscal and monetary stimulus that stabilised credit markets and eased investor concerns of a drawn-out recession. The S&P shot up 18% in three days trading.
This now looks to be premature.
Investors are coming to terms with the impact on corporate earnings and dividends as rumours spread that the controlled slowdown will be longer than expected.
Given the uncertainty, companies have been discouraged to update earnings expectations, instead practising a “wait and see” approach until the situation becomes clearer.
As a result, earnings expectations and dividend forecasts are currently far too optimistic.
Earnings revisions will likely come in the next few weeks from top companies around the world, inducing a second wave of selling as investors become fearful of lost income.
Global cases of COVID-19 have now eclipsed 900,000, with deaths topping 45,000.
The White House now projects 100k – 240k US deaths from the outbreak, despite mitigation efforts.
Further negative press is expected as initial jobless claims are due to be released today, with estimates a further 1 million people will sign up for unemployment benefits, continuing a meteoric rise when considering last week’s 3.3 million reading.
It’s currently unknown whether this information is already priced in the market – however it’s certain to spook some investors into further selling.