Stockmarkets go from panic to hysteria

Battered by the spread of coronavirus and the tumbling oil price, stockmarkets have succumbed to hysteria.

The stockmarket has passed from “panic mode into pure hysteria”, Ayush Ansal of Crimson Black Capital told Simon English in the Evening Standard. Battered by the spread of coronavirus and the tumbling oil price, Monday was the worst day for many global markets since the 2008 financial crisis. 

Losses on Wall Street were so severe that trading was halted for 15 minutes on a day when America’s S&P 500 index plunged 7.6%. The 30-company Dow Jones Industrial Average saw a similarly dramatic collapse. Italy’s FTSE MIB index lost nearly 10%. The FTSE 100 and pan-European Stoxx 600 indices both officially entered bear markets, defined as a 20% drop from the most recent high. Australia’s market fell by 7.4%. 

Money flooded into safe havens. Gold briefly rallied above $1,700 per ounce for the first time in seven years. The yield on five-year UK government bonds fell below zero for the first time on record, and that on US 30-year Treasuries slipped below 1%. Last Friday marked the 11th anniversary of the day that the S&P 500 index bottomed out at 666 before starting its long bull run. In a suitably satanic twist, ten-year Treasury yields marked the anniversary by falling to 0.666%, notes Bloomberg’s John Authers.

Prepare for recession

Crashing stockmarkets and emergency interest-rate cuts make it feel like 2008 all over again, says Neil Shearing of Capital Economics. Yet today’s world is quite different. 

The 2008 crash was a financial shock followed by “an extremely slow recovery as households and financial institutions repaired their balance sheets”. The coronavirus crisis may provide a “sharp shock” this quarter as factories are closed and cities locked down, with a brief but nasty recession perfectly possible. But activity should rebound quickly “provided that the virus fades”. Even more emergency central bank money will only further juice a recovery when it arrives. 

Emergency rate cuts have yet to have much impact, notes Jeremy Warner in The Daily Telegraph. Action by the US Federal Reserve, which delivered a 0.5% rate cut last week, has failed to calm the waters; indeed it seems “to have added to the alarm”. Black Monday 2020 will go down in history as the moment when a “decade of denial finally ended”, says Larry Elliott in The Guardian. Perpetually low rates have long masked the “underlying fragility of the global economy”. The era when asset prices could rocket ever upwards on a “giant wave of debt” may finally be at an end. 

Two things are needed for this turmoil to end, says The Economist. First, “evidence that virus infection rates” are peaking. Second, stocks must become cheap enough to tempt “bottom-fishing investors”. We are still a long way from either.

Recommended

The coronavirus is scary – but it's irrelevant to your investments
Investment strategy

The coronavirus is scary – but it's irrelevant to your investments

The spread of the coronavirus is causing alarm around the world. And, while it could be a serious short-term threat to human health, it’s not somethin…
24 Jan 2020
The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
The rising dollar is proving bad news for most other assets – will it last?
Investment strategy

The rising dollar is proving bad news for most other assets – will it last?

Precious metals, stocks and pretty much every other asset has taken a tumble as the US dollar strengthens. Dominic Frisby looks at how long this trend…
23 Sep 2020
Oil producers are back at their Covid-19 lows – is it time to buy?
Oil

Oil producers are back at their Covid-19 lows – is it time to buy?

With demand for oil hammered by Covid-19 and talk of “peak oil demand”, there are lots of good reasons to be bearish on oil producers. So, asks John S…
22 Sep 2020

Most Popular

Oil producers are back at their Covid-19 lows – is it time to buy?
Oil

Oil producers are back at their Covid-19 lows – is it time to buy?

With demand for oil hammered by Covid-19 and talk of “peak oil demand”, there are lots of good reasons to be bearish on oil producers. So, asks John S…
22 Sep 2020
Why you should stuff your end-of-pandemic portfolio with Chinese stocks
China stockmarkets

Why you should stuff your end-of-pandemic portfolio with Chinese stocks

For an end-of-pandemic portfolio, you need assets that can cope with today’s volatility. And that, says Merryn Somerset Webb, means Chinese stocks.
14 Sep 2020
IAG's share price is ready for take-off - here's how to play it
Trading

IAG's share price is ready for take-off - here's how to play it

The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it.
8 Sep 2020