Historic Crash Breaks Bull Market and Steamrolls Support Levels

(Bloomberg) -- The S&P 500’s record long bull market ended with a bang, as the steepest sell-off in more than three decades busted a trend line that races from the day the historic run began.

The S&P 500 fell 9.5% Thursday, in a wild session that saw market-wide circuit breakers triggered for the second time in a week. That took its drop since the Feb. 19 record to 27%, ending the bull run that began 11 years ago. The S&P 500 ended at 2,480, breaching 2,640, the support level for the average price over the past 200 weeks.

Global stocks deepened losses after the U.S. and European policy responses to the worsening spread of the coronavirus rattled investors pining for more. Not even increased bond-buying by the Federal Reserve could stave off a rout that is in its fourth week.

“In this environment, we’re not trading on fundamentals,” said Chris Gaffney, president of world markets at TIAA. “Certainly we’ve blown through some negative numbers and it looks like we’re going to continue to see further selling in the equity markets.”

To Matt Maley at Miller Tabak & Co., the next level to watch is 2,500, or the trend-line going back to 2009 crisis lows. After that comes 2,350, which marks the lows from late 2018.

“The 200-week moving average provided excellent support for the stock market during the deep corrections of 2018, 2016 and 2011, so if the market does not regain that line rather quickly, it’s going to make the current situation even more scary -- if that is possible,” Maley said. But he added that any near-term bounce could be “sharp.”

President Donald Trump’s travel ban and tepid fiscal measures sparked the latest leg down in risk assets, while the European Central Bank failed to stem the rout after it left rates unchanged.

Wild swings have already delivered the biggest rout since the financial crisis and triggered trading halts during the cash session. With the economic fallout uncertain -- and with many predicting a recession is at hand -- investors have been reacting to news of event cancellations, travel disruptions and some school closures.

“Further declines are in the offing as the U.S. effectively hits the ‘pause’ button on the economy in an effort to curtail spread of the virus,” said Greg McBride, chief financial analyst at Bankrate.com. “Yes, there will be economic disruption and an all-but-certain recession. Markets will undoubtedly overshoot to the downside.”

To contact the reporters on this story: Vildana Hajric in New York at vhajric1@bloomberg.net;Sarah Ponczek in New York at sponczek2@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Randall Jensen, Brendan Walsh

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