Why Monday? After Weeks Holding Firm, Stocks Finally Slide

(Bloomberg) -- Less than a week after global markets largely shrugged off a warning from Apple Inc. that the coronavirus was posing a bigger hit to sales and production than previously expected, indexes finally imploded on Monday.

Explanations for why calm enveloping U.S. equities all year finally shattered centered on fears about the sudden jump in virus cases outside China -- especially South Korea and the manufacturing hub of northern Italy. Others highlighted how investor positioning and technical indicators had become increasingly stretched, priming stocks for a drawdown.

Why Monday? After Weeks Holding Firm, Stocks Finally Slide

Here’s a selection of perspectives from strategists and investors:

Alec Young, managing director of global markets research at FTSE Russell:

“We knew for a while that it would slow Chinese growth and that it would have a negative impact on the global supply chain for any company that sources a lot of their input products from China. What’s new is that we’re getting significant outbreaks in Italy, for example. It happens to be close to Milan, which obviously is the financial center of Italy and it’s also close to southern Germany and Switzerland, which together that region is really the manufacturing hub of Europe. That’s new,” he said.

“The spread of the virus to Europe, the worsening situation in China but also now South Korea -- which is also a major global export hub -- it’s ratcheting up the uncertainty. Unfortunately, this issue is very unusual in markets where information normally comes pretty quickly, it can be discounted. This issue by definition comes in dribs and drabs over a period of many weeks and months. It’s very dangerous. A lot of people were too dismissive of this too early.”

Jason Goepfert, president of Sundial Capital Research:

“Over the past few weeks, we’ve seen signs of manic trading activity. From big jumps in specific stocks to historic highs in retail trading activity to record highs in household confidence to almost unbelievable confidence among options traders. All of that has come amid a market where the average stock can’t keep up with their indexes. There have been signs of waning momentum in stocks underlying the major averages for weeks now, which started triggering technical warning signs in late January.”

“All this selling pressure is coming soon after the indexes were sitting at all-time highs, so it’s safe to say that the complacency being felt just a few sessions ago has been shattered.”

Peter Boockvar, chief investment officer at Bleakley Advisory Group:

“The market is flying blind with this virus and how things play out from here. The only two certainties is that the current economic impact is profound globally and that the virus will eventually go away and things will bounce back. What happens in between is impossible to say.”

Why Monday? After Weeks Holding Firm, Stocks Finally Slide

Michael Antonelli, managing director and market strategist at Baird:

“The economic data was overwhelming the virus fears. There was a subtle shift last week in how the market viewed the virus. It was right to ignore the virus in the sense that the human death toll doesn’t seem to be on pace to be one of the worst in history. The subtle shift was the market concern about supply chains. The concern now is about how do businesses continue to function in a world where borders start to get shut. That’s the concern they started to worry about. Then you saw the outbreak in Italy and Japan and Korea. If all of a sudden Korea and Japan had to shut down borders and now Italy, now it looks like the global economy screeches to a halt.”

Quincy Krosby, chief market strategist at Prudential Financial Inc.:

“What we saw over the weekend was the path of the virus -- you have the duration, how long this is going to last and you have the direction -- and the direction is moving away from China and moving onto areas that we haven’t seen before,” she said. “If this were to hit the U.S. in ways -- and remember the U.S. is large -- in ways where in New York City, and LA and Chicago started to see the number of cases starting to build and folks actually in hospitals and dying, you’re going to see people much more nervous.”

Jim Paulsen, chief investment strategist at Leuthold Group:

“The 30-year yield last week broke to new lows and the 10-year yield is on the cusp of that. I think that is a bigger culprit behind the sell-off than most appreciate. All the headlines are about the coronavirus, but I think the bigger thing in the room is the bond market. It’s been a chronic fear for some time -- actually, it has been a fear throughout this recovery -- but it certainly has been since last year when the stock market took off and bond yields went down. There’s been this idea: what does the bond market know that the stock market doesn’t? And the bond market seems to be suggesting some near-term calamity while stocks seem to be ignoring it and it’s creating a lot of fear.”

Delores Rubin, a senior equity trader at Deutsche Bank Wealth Management:

“Last week the news was China was sending people back to work so containment of the virus seemed to be in place. But the news out of South Korea and Italy, especially hearing Milan events canceled outright, has created real concerns about a prolonged effect. If these waves of outbreaks persist, we could see the economic effect of the precautions put in place by governments and companies.”

Brian Barish, chief investment officer at Cambiar Investors LLC:

“Today was mostly panic selling and/or decreasing long exposure.”

“Usually these things blow over in two to four months, and that’s my base case. It is a very contagious virus and people seem to harbor it for a while with no symptoms. So, the risk is it goes on longer than normal.”

©2020 Bloomberg L.P.

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