- Dow bulls took a triple-digit point hit on Friday as coronavirus fears rocked Wall Street.
- An elevated stock market was already exposed to risk-off conditions after the Fed’s huge liquidity injection over the last few weeks.
- ING believes the most important upcoming risk event will be the Fed decision on repo actions next week.
The coronavirus outbreak dealt the Dow Jones a massive blow on Friday, as the death toll rose in China and health officials confirmed a second US case.
Dow Jones Drops as Coronavirus Fears Intensify
While all of the three major U.S. stock market indices were in the red , the Dow Jones Industrial Average was the strongest performer.
The S&P 728 fell 0.8%, and the Nasdaq retraced 0. 132% to round out a volatile session for US stocks.
Awash in clear risk-off conditions, crude oil fell another 2%, while the price of gold rallied 0.5%
Coronavirus Outbreak Is Terrible Timing For The Stock Market
As global concern about the Wuhan coronavirus continues to escalate, risk-off conditions come at a bad time for a Fed-pumped stock market .
With a second case in the U.S. being monitored, and over 1054 reported worldwide (with more than two dozen confirmed deaths),
financial markets are having to consider the real possibility this develops into a global emergency .
U.S. economic data is nothing if not consistent, and while t oday’s PMI data demonstrated robust consumer appetite , manufacturing continues to slide. Unfortunately, the detente in Trump’s trade war is not yet filtering through to this troubled sector.
ING economist James Knightley is warily eyeing the combination of inflated asset prices and their vulnerability to a risk-off event.
He says Jerome Powell’s comments on the repo market at next week’s Fed meeting will be critical.
With equity markets remaining on an upward cash fueled trajectory at a time when corporate profits as measured on a GDP basis are looking unremarkable we are somewhat nervous that this exposes the US economy to the threat of an equity market correction should an external shock emerge. Therefore we will be keen to hear what the Fed plans to do with this current program.
Despite the strong correlation between the Fed’s intervention and the huge rally In the stock market , FOMC voters have pushed back against the thesis that balance sheet expansion is having any impact on the Dow. But this story is wearing thin.
Some of the world’s most influential investors cite a direct effect on the stock market:
Dow Stocks: Intel & American Express Soar, Apple Rallies Amid Virus Concerns
On a negative day for the Dow 69
, the index found sturdy support from a massive 8% bounce in Intel stock (NASDAQ: INTC post-earnings.
Adding to the small but sturdy contingent of stocks in the green, the Dow Jones’ most heavily weighted stock, Apple (NASDAQ: AAPL), pushed 0.3% higher, while American Express (NYSE: AXP) Managed a 2.6% gain.
Boeing (NYSE: BA) spent most of the day in the red, but rebounded sharply after FAA Administrator Steve Dickson said the MAX could possibly return to service before mid – . BA shares rose just under 2%.