S&P 500 has dropped 3% from its record high and had its worst day since October. The Dow Jones Industrial Average also had one of its biggest declines that saw it drop by over 600 points on as investors grew increasingly worried about deadly coronavirus.
While the US declared coronavirus a public health emergency within the country, the WHO also recognized the virus as a global health emergency on Thursday.
The deadly virus has now spread to at least 18 other countries after being first discovered in the Chinese city of Wuhan.
“There’s fear going into the weekend,” said Ilya Feygin, senior strategist at WallachBeth Capital. “The theme coming into this year was the Fed and Trump are going to bail us out of any problems, but the virus is something neither one can do anything about. That’s a reason to become more fearful.”
Gold is gaining
Stock market’s loss has typically been yellow metal’s gain as investors turn to a safe haven asset. Gold is now scoring a second straight monthly rise though it has pulled back from it six-year high for now.
“We are operating in an environment in which safe assets are scarce … Investment demand will continue to flow to gold because capital is seeking shelter from negative real yields,” said TD Securities commodity strategist Daniel Ghali.
Bitcoin could gain further
Bitcoin has already surged over 27% in 2020, going from $7,150 to $9,500. Though we took a slight breather in mid-January, towards the end of the month we again start climbing and have been staying above $9,000 level since Tuesday. Currently, BTC/USD is trading at $9,450.
As can be seen from the crypto markets move in the past month, it has diverged from the equity markets in 2020.
Up until two weeks ago, market strategists and economists were “talking up the global economic outlook and hailing 2020 as a good year for markets with no major risks on the horizon,” points out Spartan Black of crypto hedge fund The Spartan group and former partner at Indus capital and Goldman Sachs. But now the deadly coronavirus outbreak has changed that prognosis.
The outbreak of the virus saw travel restrictions being imposed and two dozen Chinese Cities in the vicinity of Wuhan in the lockdown. Meanwhile, there is no knowing when the tens of millions will be allowed back to the cities for work which affects factory output.
Spartan Black says the “travel curbs and related impact will likely take a few bps off global GDP growth in the next 2-3 quarters. The equity markets have started to price that in. Further signs of weakness and market instability may cause central banks to spring into action,” said Spartan Black. This means rate cuts and another round of quantitative easing.
Bitcoin will keep on rising if central bank keep on printing
The bond market is already pricing in a high likelihood for another rate cut from the Fed in mid-year.