Stocks and risk assets ended the week battered. At the same time, safe harbors like bonds and gold regained their luster as markets digested a spike in new coronavirus cases and data showing a stall in U.S. business activity.
Major Wall Street indices saw selloffs Friday, with the Nasdaq posting its worst daily percentage decline in about three weeks.
Gold, meanwhile, hit a fresh seven-year high, and the yield on the 30-year U.S. Treasury bond slid to an all-time low. Bond yields move inversely to prices, so falling yields are a sign of greater investor interest.
“The seemingly wide moves in the market over the past few days are driven largely by concerns over coronavirus and the implications for the global economy,” said Robert Johnson, Professor of Finance at Heider College of Business, Creighton University.
Coronavirus cases have jumped beyond the epicenter in Hubei province, China, including 100 more in South Korea and a worsening situation in Italy.
“An old Wall Street adage posits that ’markets dislike uncertainty' and there is a great deal of uncertainty regarding the extent of the spread of the virus, its effect on global supply chains, and ultimately on the world economy,” Johnson told The Epoch Times in a statement. “Compounding the problem is the lack of transparency on behalf of the Chinese government and whether the impact is perhaps more serious than is being reported.”
“It has all of us who look at these numbers scratching our heads—we cannot tell whether the transmission of the virus has been reduced because of the quarantine,” said William Schaffner, a professor at the division of infectious diseases at the Vanderbilt University School of Medicine and the medical director at the National Foundation for Infectious Diseases.
“We can’t tell because they keep counting cases in a different way,” he told The Epoch Times.
Also sapping investor sentiment was a survey of purchasing managers showing U.S. activity in the manufacturing and services sectors stalling over growing concern of the potential toll of the fast-spreading virus.
The IHS Markit flash services sector Purchasing Managers’ Index dropped to its lowest since October 2013, signaling that a sector accounting for roughly two-thirds of the U.S. economy was in contraction for the first time since 2016.
Marc Lichtenfeld, Chief Income Strategist at The Oxford Club, cautioned against blaming coronavirus fears for the recent market moves, pointing to the fact that some markets hit new all-time highs this week, with both the S&P500 and the Nasdaq breaking records on Wednesday.
“It’s hard to say if today’s action is a bit of a risk-off mentality going into the weekend or it just could be market noise,” Lichtenfeld told The Epoch Times in a statement.
“I believe that many traders concerned about coronavirus unwind positions prior to the weekend to try and de-risk portfolios,” Johnson said, suggesting a more technical aspect to Friday’s market dynamic.
“Long-term investors should not attempt to make significant portfolio adjustments in response to the crisis de jour,” Johnson said, adding that trying to predict market moves in response to shifting headlines “is a losing game.”
