Investors have seen their portfolios drop in record time. According to Torsten Slok, the chief economist at Deutsche Bank Securities, the (10.76%) decline the S&P 500 index has posted over the past six trading days marks the fewest trading sessions for the benchmark to lose 10% or more of its value. The Dow Jones Industrial Average has fallen even further. Over the same Feb. 21 to Feb. 27 period, it has lost 11.1% of its value.
A 10% market decline is typically considered to be officially a “correction” for stocks.
Indicator says more selling could be ahead
While this isn’t a prediction, one reliable indicator says we could see more selling in the days to come. In addition to passing the 10% sell-off mark, the S&P 500 also fell below its 200-day moving average. This metric, which measures the average price for the index over the past 200 trading sessions, often results in increased selling from investors who follow technical analysis versus the fundamentals of a company’s business.
Coronavirus-driven fears also offer reason for concern
It’s important to note that the stock market isn’t the economy, and vice-versa — and the trajectory of one or the other can move in different directions, particularly in short periods of time. Yet with that caveat, the rapid spread of the COVID-19 strain of coronavirus in recent weeks has sent global markets into turmoil as major economies including China, and more recently Japan and others, take major steps to curb the spread of the disease.
The market’s pullback is caused by fears that the global economy could go into recession in 2020. There has been an expectation that China could experience significant economic weakness to start 2020 due to its internal efforts to stop the spread of coronavirus, but Goldman Sachs recently surprised many when it predicted that the U.S. economy would run out of steam this year. Analysts at the bank now expect U.S. companies won’t be able to grow their profits at all this year.
Looking beyond the short-term impacts of the COVID-19 strain of coronavirus on the global economy, many investors expect the ongoing sell-off to create opportunity. Historically, stocks tend to quickly rebound after a sell-off, but with lots of uncertainty controlling the news cycle, investors could see more pain in the days or weeks to come.