Dow Jones Falls More Than 12% in a Week: What to Expect?

Updated on Mar 1, 2020 at 11:43 am UTC by Teuta Franjkovic · 4 min read
Photo: Unsplash
Photo: Unsplash

Equities on major United States stock markets closed the trading session on Friday mostly lower, ending the worst week since the 2008 financial crisis. The Dow Jones and S&P 500 each dropped 12% and 11% in a week.

Wall Street went through a historic drop this week all “thanks” to fast-spreading coronavirus that worried investors and traders. Novel coronavirus (COVID-19) developments grabbed the investors’ focus as the World Trade Organization (WHO) updated the coronavirus global risk to “very high.” Italy and South Korea reported increases in the number of confirmed cases, while Mexico announced first infections in the country.

The Dow Jones Industrial Average and S&P 500 each dropped 12% and 11% for the week, respectively, presenting, what became their worst weekly performance since the financial crisis 2008.

The 30-stock Dow had its biggest one-day points loss ever on Thursday. It went down more than 10% from a record high, together with the S&P 500 and Nasdaq Composite.

WHO Urges Market Participants to Calm Down

The U.S. market’s historic tumble came as worries grew over the coronavirus impact on the global economy and corporate profits. The World Health Organization’s Director-general Tedros Adhanom Ghebreyesus said on Sunday that global markets should “calm down” following massive selloffs from the United States to Asia as the coronavirus outbreak continues to rattle investors

The current death toll from the virus dubbed COVID-19 by WHO stands at over 2,900, while total confirmed cases are reported at more than 85,000 worldwide.

JJ Kinahan, chief market strategist at TD Ameritrade added:

“When people don’t know how to quantify things, which is really where we’re at right now, the first reaction in the market is to sell first and figure things out a bit later.”

The Dow fell more than 1,000 two times this week. Thursday’s loss of 1,192 points was the Dow’s biggest one-day point loss on record. The 30-stock average also ended the week down 14% from a record high.

Meanwhile, the S&P 500 fell more than 2% in three of the five sessions this week. This situation hasn’t happened since August last year. The US stock benchmark ended the week approximately 13% below a record high set on February 19. That is also the quickest decline from a record high into a correction ever, outside of a one-day crash.

People Are Selling First and Asking Questions Later

All 30 Dow members finished the week 10% less from their respective 52-week highs. Tech giant Apple Inc (NASDAQ: AAPL) traded approximately 20% down from its intraday record set in January.

Keith Lerner, chief market strategist at Truist/SunTrust Advisory commented:

“What we’ve seen the last couple of days is pure liquidation. Investors are saying ‘get me out at any cost’. The most important dynamic in the market is uncertainty. People are selling first and asking questions later.”

Traders and investors sought protection from the stock market’s decline by loading up on U.S. Treasury and hedging through options.

The yield on the benchmark 10-year Treasury issued by the United States government dropped below the 1.30% mark on Thursday. The yield on 10-year Treasuries decreased by 3.5 basis points to 1.298% at 5:15 am ET. At the same time when it comes to the yield on two-year bonds, the drop was of 5.1 basis points to 1.121%. The yield on 30-year debt went down by 3.8 basis points at 1.782%.

Microsoft, PayPal, Mastercard Among Affected

All big companies said they won’t meet their quarterly guidance. First, it was Microsoft Corporation (NASDAQ: MSFT) who said its current-quarter revenue guidance for its personal computing division which accounts for 36% of the company’s overall sales — would not be met. Then PayPal Holdings Inc (NASDAQ: PYPL) warned that the coronavirus will negatively impact its revenue forecast. Mastercard Inc (NYSE: MA) also confirmed the virus could dent its 2020 revenue.

The thing we see it will keep happening is that both traders and investors will look for signs of a bottom after the week’s massive downturn.

Since the time of World War II, the S&P 500 has had 26 market corrections (without not taking into account the current one). During those periods, the average decline was around 13.7%. And around 4 months were needed for recovery.

Bonds, Business, Indices, Markets, News
Teuta Franjkovic
Author: Teuta Franjkovic

Experienced creative professional focusing on financial and political analysis, editing daily newspapers and news sites, economical and political journalism, consulting, PR and Marketing. Teuta’s passion is to create new opportunities and bring people together.

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