Proceed with caution value-seeking investors. The hammer job done on stocks[1] at the hands of the spreading coronavirus may just be getting started if history and common sense are any guides.
SunTrust chief markets strategist Keith Lerner thinks there is another 5% to 7% of downside possible for the S&P 500. His call is supported by two factors.
The first is a heavy dose of market history. Lerner notes that since the current bull market began in March 2009 (S&P 500 up 400% since then) there have been 19 pullbacks of at least 5%. Every pullback came with uncertainty and bad news, Lerner says, pointing to several virus-related outbreaks such as the Swine flu in 2009, the Ebola scare in 2014 and Zika in 2016. These corrective periods have lasted an average of 47 days and have seen an average pullback of 9.4%.
The current correction spurred by fears of the coronavirus morphing into a global pandemic[2] — where $2.5 trillion has been wiped off the value of U.S. stocks since last Wednesday’s high per S&P data — is approaching the average bull market percentage pullback. But the losses have come in only four days and there remains significant uncertainty as to how bad Corporate America’s profits will be hit.
Trust me, I talk to loads of top executives — off the record they are saying it’s hard to even estimate the impact not only in the first quarter, but into the summer. But you could hear the concern in their voices.
That uncertainty and financial risk has to get priced into stocks. It likely will as infection and death tolls from coronavirus stand to rise globally in the weeks ahead....
