US equities are dragging as investors’ optimism about coronavirus that originated in China to be short-lived is getting challenged.
The COVID-19 has spread beyond China’s border recording new deaths in Beijing, South Korea and a larger spread of the COVID-19 across the US.
“At some point, we are likely to see community spread in the U.S. or in other countries,” warned Dr. Anne Schuchat, a top official of the Centers for Disease Control and Prevention.
There are also concerns about the virus taking a heavy toll on corporate earnings. The concerns have already started proving to be true as Apple (APPL) pre-announced that it would not be able to meet its revenue expectation for this quarter.
US stocks have been extending the losses Friday with Microsoft and other big tech names leading the losses with the S&P 500 having its worst decline today following yesterday’s fall as the spread of the epidemic from China to neighboring counties amplified the worries about its impact on global economic growth.
Stock Market Extends the Losses while Gold Gains
While the tech sector was the biggest loser in the S&P 500 sector, which is down 2.4%, the Dow Jones Industrial Average fell 257 points.
“The coronavirus outbreak contains a significant likelihood of impact to the global economy and the potential to become a black-swan type event,” said BofA Global Research rates strategists on Friday.
“The uncertainty has been reflected in the market and has naturally led to an increase in recession probabilities.”
The Federal Reserve however, said in its FOMC meeting minutes on Wednesday that it is closely monitoring the economic impact of the coronavirus outbreak.
Meanwhile Treasuries, gold, and euro strengthened as investors pile into traditional safe haven assets. Crude oil also fell while the US dollar broke its four-day winning streak.
Going into the weekend, gold has risen to 7-year high with investors reluctant to hold on to risky assets. The safe haven asset strengthened 1.8% to $1,647.95 an ounce.
“It could be some larger players hedging against downside risk of the coronavirus spreading,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “That, on top of the Goldman call that a correction is more likely, has people on edge.”
Bitcoin Didn’t get the Memo
Meanwhile, Bitcoin hasn’t got the memo that it has to act as a store of value and rise. While the yellow metal is climbing up to Feb. 2013 level, Bitcoin has crashed from about $10,300 to below $9,500. Instead of going the bullion route like a purported safe haven, bitcoin is following the lead of the stock market for the past few days.
Currently, BTC/USD is trading at $9,685, in the green by just 1.00%, however, the digital asset is still up 32.50% year-to-date.
However, as economist and trader Alex Kruger pointed out the focus should be on the correlation of returns and not prices. Bitcoin might be looking bad for now, but the digital asset already breached the 200-moving average and this week printed a golden cross.
Trader Galaxy observes, “We are currently mirroring ’19 in terms of price decrease after the GoldenCross, Stats: Nov 2019 – 9,80% decrease -> 170% increase, Feb 2020 – 9,04% decrease -> ?? increase.”