Jack Ablin of Cresset Capital, Mona Mahajan of Allianz and Paul Hickey of Bespoke Investment Group join "Power Lunch" to discuss the sharp sell-off in the market as coronavirus fears grow. Stocks continued their rout on Tuesday as diving bond yields raised more concern that the global economy is slowing significantly because of the spreading coronavirus. The 10-year Treasury yield hit a record low as the Dow Jones Industrial Average added to Monday’s 1,000-point drop.
Comments from health officials warning of a possible outbreak in the U.S. also spooked investors, causing a turnaround in stocks which had opened the day higher.
The Dow dropped 900 points, or 3.3% after being up more than 180 points at one point shortly after the open. The S&P 500 slid 3.2% while the Nasdaq Composite fell 2.9%. Monday’s session was the market’s worst in two years. The S&P 500 hasn’t had back-to-back declines of more than 3% since November 2008 during the financial crisis, according to Bespoke Investment Group.
These declines also put the Dow and S&P 500 more than 7% below the record highs reached earlier this month. The Nasdaq is trading 8.2% below its all-time high from Feb. 19. Technology stocks such Apple and Facebook have also fallen into correction territory, down more than 10% from all-time highs hit just last month.
“I understand the inclination to buy on the dip. I understand that the path of least resistance in this market is to bounce up ... but I stress, this is different,” Mohamed El-Erian, chief economic advisor at Allianz and former Pimco CEO, told CNBC’s “Squawk Box.”
U.S. equities dropped as Centers for Disease Control and Prevention (CDC) officials briefed the U.S. on how to get ready if the coronavirus outbreak worsens domestically.
“We are asking the American public to work with us to prepare in the expectation that this could be bad,” Dr. Nancy Messonnier, a top official at CDC, told reporters on a conference call.
Stocks fell even as top White House economic advisor Larry Kudlow maintained that the coronavirus was contained so far in the U.S. and that economic growth had yet to be significantly affected.
Traders kept an eye on the bond market, which pointed to slower economic growth around the world. The 10-year Treasury yield traded at 1.32%, hitting an all-time low. The 30-year U.S. bond yield also reached a record low. Bond prices move inversely to yields.
“With global investors chasing after U.S. assets, specifically fixed income, there’s significant pressure on rates to stay low,” said Andrew Thrasher, founder of Thrasher Analytics. “This doesn’t mean we won’t see some counter-trend moves in the 10yr, but the trend is well defined to the downside right now which is not one I’m overly eager to fight.”
The drop in yields pushed bank stocks lower. Bank of America fell more than 4% while JPMorgan Chase traded 3.5% lower. Citigroup and Wells Fargo declined by 3.6% and 2.4%, respectively. Lower rates could hit bank profit margins.
The moves on Tuesday came after investors fled stocks on Monday as a surge in coronavirus cases outside of China intensified fears of a prolonged global economic slowdown.
The Dow suffered its biggest point and percentage drop since February 2018 on Monday. The S&P 500 plunged 3.3%, also the worst drop in two years. With Monday’s declines, the S&P 500 and the Dow both wiped out all of their 2020 gains.
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