On February 19th, S&P 500 closed at a high record and deduced that the US stocks were unaffected by the coronavirus epidemic. However, nine days later, the US stock market suffered its fastest ever 10% decline. This has threatened the global markets as stocks were driven to their worst weekly loss since the 2008 financial crisis.
According to S&P Dow Jones Indices, the US stock lost $3.18 trillion in market value this week alone. This loss has wiped out four months of gains from the S&P 500.
The 10-year Treasury note fell sharply as its yield moved to 1.114% from 1.30% on Thursday. A new record as investors sought a safe haven from the catastrophic stock market figures.
The Federal Reserve announced it would support the economy regarding the evolving threat caused by the coronavirus. Investors are expecting the Federal Reserve to cut rates by mid-March.
Both the FTSE 100 and Stoxx Europe 600 have lost 3.4% on Friday. The MSCI’s Asia Pacific index dropped at 2.6%. Thus, the global markets fell by 11.2% this week.
This sell-off in stock set out a new low record in the market which is described by investors as a “correction”. A correction is a fall of 10% from its recent peak. It is used to indicate that investors have become pessimistic about the market.
Consequently, investors fear that the global stock market rout may cause a psychological effect on consumer as they may become reluctant to spend or travel to crowded areas.
Energy, material and financial stocks were the worst performing sectors. American Airlines lost 31.5%, whilst Bank of America and Citi Bank lost 17%.
Likewise, utility companies which are usually a safer bet for equity investor during market strife were the worst performing stocks.
An index of European travel and leisure stocks has dropped 19 per cent making it the highest decline since the terrorist attack in 2001.
Furthermore, Bank of America has estimated that global growth will fall below 3% in 2020. Goldman Sachs claimed that US corporate profits would become dormant this year.
Andrew Sullivan, director at Hong Kong brokerage Pearl Bridge comment that people were running scared.