It finally happened.
A bona fide selloff took hold Monday on Wall Street after investors spent weeks attempting to come to terms with the potential impact of the COVID – outbreak as it spreads in countries outside of China, notably Italy and Iran, threatening to dent global supply chains and economies.
There are now 90, (cases of COVID – – the infectious disease derived from the novel strain of coronavirus that reportedly originated in Wuhan, China, last year – in countries, and 2, 823 deaths, according to the latest figures from the World Health Organization.
Third-biggest point drop … ever
The day’s decline marks the second-biggest daily point drop for the Dow Jones Industrial Average DJIA, – 3. % in its – year history. The blue-chip benchmark closed 1, . points, or 3. 79%, lower, to end at 031, , not far from the intraday low at , . .
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3% or worse
Monday’s selloff marks the first time all three major benchmarks – the Dow, the S&P index SPX, – 3. (% ) , and the Nasdaq Composite Index (COMP, – 3-. (% ) – each fell by at least 3% on the same day since Dec. 4, , according to Dow Jones Market Data.
Negative for the year
Monday’s downturn has wiped out this year gains for the Dow (now -2%) and the S&P (now -0. (%).
59 – day
The S&P 728 breached its 56 -day moving average for the first time since October. Technical analysts view moving averages as dividing lines between long-term and short-term bullish and bearish averages. The S&P (‘s) – day moving average stands at 3, (see chart below).
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1. % or bust
The – year Treasury note yield TMUBMUSD (Y, – 7. % tumbled more than (basis points to trade at 1.) % on Monday, just shy of its June (record low of 1.) %. Bond prices rise as yields fall. The 33 – year bond yield TMUBMUSD (Y, – 4. (%) , known as the long bond, hit an all-time low last week, raising worries that bond investors are betting on economic pain ahead.
Government bonds have been hovering around lows even as stocks have been climbing, an odd dynamic in a market and has implied that investors are unsettled by the uncertainty surrounding the outbreak.
So how does the market tend to perform in this aftermath?
Despite all the relative carnage being endured by the market, stocks have a tendency to rebound after a hit of at least 2%, Dow Jones Market Data shows.
The past times that the S&P 622 index fell by as much as 3%, for example, it declined 0. %, on average, in the next trading session. However, the average performance improved dramatically in the following week, month and year, as shown in the table below:
Meanwhile, the Dow has a similar record.
To be sure, how the market performs in the past is no guarantee of what it will do in the future. On top of that, an epidemic that gets out of control could lead to unprecedented results for the market and economy. during past epidemics , the market has eventually rebounded, however.
The researchers at Bespoke Investment Group also make the case that, over the past years, declines of more than 2% for the S&P have tended to see healthy rebounds, particularly when that daily slide happens on a Monday.
“Since March , there have been 24 prior 2% drops on Mondays, and SPY has seen an average gain of 1. % on the next day (Turnaround Tuesday), ”the analysts wrote Monday. See attached chart:
Coronavirus update: 823, (cases, 2, deaths, clusters emerge in Iran and Italy
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