Wednesday's Headlines 1. US markets give up early rally as virus concerns mount 2. Microsoft reins in revenue forecast 3. Investor anxiety is peaking 4. US markets are still pricey despite recent losses Markets Closed
Markets Today What looked like a resurrection rally this morning quickly evaporated by midday as investors fled from stocks on mounting coronavirus concerns. The DJIA swung 650 points throughout the trading session and closed near its lows for the day. The Nasdaq did manage to close in positive territory as stocks like Gilead Sciences and Netflix posted strong gains. But the drumbeat of worry proved to be too loud as more reports of the spread of the coronavirus around the world made headlines.
New infections were diagnosed in countries from Pakistan to Brazil. The latter reported the first case in Latin America, while Italy and Iran confirmed additional patients with the disease. Germany said it was likely at the start of an epidemic. On these shores, Nassau County health officials in New York said that they have placed 83 Americans in self-quarantine after returning to New York from China amid concerns they were exposed to the virus.
After a week of heavy selling, global markets, as measured through the MSCI All-Country World Index, are down 5%. But individual countries, like the U.S. and Italy, have fared much worse. The S&P 500 is down 8.4%, its steepest decline since the end of 2018, and the Italian stock market is down 9%. Headlines:
High Anxiety Investor anxiety can manifest in many ways. We are seeing it in the exodus from global equity markets, the rush of money into government bonds, and the spike in volatility that is triggering massive intra-day swings in stock prices.
At Investopedia, we track anxiety by looking at the spike in search traffic around keywords that are associated with anxiety. These are words like "correction", "volatility", "Bear market", "liquidity"... you get the point. We call it the Investopedia Anxiety Index, because we are clever like that.
As you can see from the chart above, anxiety, as measured by our index, is nearing levels it hasn't reached since the end of 2018 when U.S. markets fell into a correction. It spiked at the beginning of the year over U.S.-Iran tensions, and then spiked nearly two weeks ago as news of the spread of the coronavirus dominated headlines. While investors did not really start selling until about a week ago, tensions were high, and it didn't take much to push markets into this steep sell-off. chart courtesy Bloomberg
When Will it End? That's the $2 trillion question, and if I knew, I would happily share that information with all of you. What we do know is that even though U.S. stocks have been hit hard in the past week, they are still relatively expensive from a price-to-earnings perspective compared to their global counterparts. Investors were happy to pay the premium before the coronavirus became a global threat, sending U.S. indexes to record highs. However, now that investors are scared and anxious, those hefty price tags might keep the same investors away when they start buying stocks again.
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(chart courtesy YCHARTS) Shares of Moderna, the biotech firm which has developed a coronavirus vaccine that will soon undergo testing, continued to climb. Fellow biotech firm, Gilead Sciences, also continued to rise after the National Institute of Health began further testing of its drug remdesivir for use against the coronavirus. Retailer TJX rose after reporting strong profits and raising its dividend. Chesapeake Energy dropped substantially after it reported disappointing revenue numbers, adding to its woes in the face of low gas and oil prices. Television company Sinclair Broadcast fell after reporting worse-than-expected profits for the last quarter. Word of the Day A rogue trader is a trader who acts recklessly and independently of others, usually to the detriment of the institution that employs the trader as well as its clients. Rogue traders typically make high-risk investments that can produce huge losses or gains. Rogue traders, though, are only labeled as such if they lose. If their trades are enormously profitable, no one calls them "rogue." They are more likely to receive a huge bonus. Today in History February 26, 1995
Sources: https://www.investopedia.com/terms/b/baringsbank.asp and https://www.investopedia.com/ask/answers/08/nick-leeson-barings-bank.asp
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Wednesday, February 26, 2020
Gone Gains
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