The global stock markets continue to get rocked over coronavirus fears with no end in sight with the Dow Jones Industrial Average plummeting 7.8% just in Wednesday’s trading, the worst single-day loss since the housing crisis that came to a head in 2008.
The Dow as well as the broader-market S&P500 are both down about 18% over the last month, prompting investors to cash out gains of the 10-plus year bull market as well as reevaluate current valuations of equities.
“The first thing to understand is corrections in stock markets happen and we’ve just forgotten about them,” Zacks Investment Research chief equity strategist John Blank tells Pollstar.
“Corrections of 10% or more, 90% of the time a year later the stock market is actually higher. The problem we have here is this probably is a recession.”
Blank noted the increased need for hospital beds, medication and ICU’s during a pandemic, meaning additional cancellations of mass gatherings as well as quarantines are likely.
“if you’re a policy maker and I present this to you, what do you do? Your best instinct and policy is to jump on this right away [and cancel events]” Blank adds. “This is your problem. You need to explain to people, even though the fear may never materialize.”
While the impact of the coronavirus could end up severe enough to cause an economic recession on its own, the long-running bull market that has seen stocks rise steadily over the past 10 or so years means a stock market correction was inevitable at some point.
“This whole coronavirus has been a very convenient excuse to take the market down where it’s supposed to be anyway,” said Blank, who noted that the price-to-earnings ratio of the current S&P 500 index is still at 16.1, which is historically high. “[The markets] could go down a lot from here and still not be cheap,” Blank adds.
While small-cap stocks tend to get hit harder than large blue-chip stalwarts during a stock market downturn, it is notable Live Nation stock is down 35% in comparison.
Blank notes that while countries with more authoritative governments such as China can more readily restrict travel and movement of their citizens, the fact situation seems to be stabilizing there could mean other countries take similar measures, meaning canceled events or travel plans.
“A year from now this is probably over and you’re fine, which is what you need to remember, but a year can be a long time.”