As the fear of coronavirus outbreaks grips the world, the US stock market has not been untouched by it (figuratively, of course). While the stock market has already been exercising caution as the term of President Trump nears its end, the news of coronavirus has been a trigger.
Experts have cautioned that the US equity benchmarks are nearing an all-time high and can cause a near-term pullback – something that pundits have been fearing since the year began. If the Friday market opening is any indication, it may well be true. As the death toll in China increased and USA witness its second victim of the coronavirus, the US stock market gave up early gains and traded lower than expected.
According to Jeff deGraaf (Chairman, Renaissance Macro Research), the market conditions are “ripe for a pause” as the overbought stocks are reaching extreme levels. A trigger was required to blow this whole thing up. But deGraaf also pointed out that while bullish extremes are not as volatile as bearish ones, a closer inspection quickly reveals that the current situation has reached overbought extremes.
The impact of coronavirus news has been far-and-wide in the market. Both Dow Jones and Nasdaq Composite closed at 0.6% and 0.8% down respectively. The S&P 500 recorded a down of 0.9%, the biggest one-day loss since October 1 last year. The S&P began this year riding on the waves of 2019 but now stands at just 2% up from the previous year.
The fear surrounding epidemics has often caused investors to panic and pull down bullish sentiments from the extremes. But deGraaf also adds that such environments of panicked investors also often prove to be buying opportunities for some. The same phenomenon could happen in the current case of coronavirus outbreak.