- The Dow Jones Industrial Average Index and the S&P 500 fell on Thursday and moved into the correction zone. The US stock market fell into a correction zone in 2018 due to concerns about the trade war, slowing growth, and Fed rate hikes.
- The crash in US stock markets has been sharp and swift. The Dow Jones Index had its worst fall yesterday. Things are starting to look ugly now due to the coronavirus spreading outside China.
Dow Jones and S&P 500 correct
The Dow Jones Index (NYSEARCA:DIA) and the S&P 500 (NYSEARCA:SPY) each fell by fell 4.4% on Thursday. US stock markets entered into correction territory yesterday after falling 10.0% from their recent peaks. US stock markets have fallen into the correction zone for the first time since 2018. At the time, stock markets fell due to trade war fears compounded by the Fed’s tightening and slowing global growth.
Meanwhile, the fall in US stock markets has been swift. The Dow Jones Index has fallen by more than 3,200 points this week. The index has closed with losses for six consecutive trading days. Looking at Dow Jones futures, the current week could be the worst since 2008.
Stock markets crash
President Trump tried to calm the fears during his press conference. He downplayed the coronavirus risk and partially blamed Democrats for the crash in the Dow Jones. However, stock markets didn’t seem to trust President Trump’s word this time. The Dow Jones Index and the S&P 500 continued their losing streak yesterday. A stock market crash might hurt President Trump’s 2020 reelection chances. He has frequently boasted about strong stock market gains during his presidency. However, a stock market crash in an election year is the last thing that President Trump wants.
What’s driving the fall in the Dow Jones and S&P 500?
While coronavirus cases are stabilizing in China, they’re rising in other countries. In the US, the first “unknown origin” coronavirus case added to the fears. The coronavirus threatens global economic growth. Several companies warned that the virus could hurt their earnings. US stock markets rose sharply last year. Notably, the Dow Jones Index and the S&P 500 made new records. Stock markets rose on the premise that global growth and US corporate earnings would rebound in 2020.
Stock market valuations
The 2020 earnings growth outlook has started to look bleak due to the coronavirus. Goldman Sachs doesn’t expect any earnings growth for S&P 500 companies in 2020. Bank of America expects global growth to fall to 2.8% this year—the worst since 2009. The IMF also slashed its 2020 global economic growth outlook. Currently, there’s a lot of uncertainty with downside risks. The Dow Jones Index and the S&P 500 started 2020 with sky-high valuations. Lofty stock market valuations have amplified the coronavirus-driven stock market crash.
Meanwhile, Treasury yields have fallen to record lows. Before the coronavirus spread, the consensus view was that the Fed would stay put on rate cuts this year. However, with the coronavirus threatening the US and global growth, the Fed might have to lower rates and help shore up the economy.