- Dow Jones Industrial Average had its worst day since August and S&P 500 since October
- “The current backdrop for gold is stereotypical of strong phases,” as gold scored a second straight monthly climb
- BTC already up 27% YTD and gain further as coronavirus to lead to rate cuts and another round of quantitative easing
In one of its biggest declines, the Dow Jones Industrial Average fell by over 600 points on Friday as investors grew increasingly worried about the potential economic impact of deadly coronavirus.
While Dow had its 30-Stock average’s worst day since August, S&P 500 also had its worst day since October and the Nasdaq Composite fell 1.6%. This happened after the US declared the coronavirus a public health emergency within the country and American, Delta and United suspended all flights between the US and China.
Fear going into the weekend
First discovered in the Chinese city of Wuhan, the virus has now spread to at least 18 other countries. China’s National Health Commission confirmed 9,692 cases of the coronavirus with 300 deaths. The WHO also recognized the virus as a global health emergency on Thursday.
“There’s fear going into the weekend,” said Ilya Feygin, senior strategist at WallachBeth Capital.
“The theme coming into this year was the Fed and Trump are going to bail us out of any problems, but the virus is something neither one can do anything about. That’s a reason to become more fearful.”
Morgan Stanley’s chief US equity strategist, Michael Wilson says a major stock market pullback since October may be underway.
Gold scored a second straight monthly rise
Meanwhile, gold though pulled back from over six-year high scored a second straight monthly climb.
“The current backdrop for gold is stereotypical of strong phases,” said Adrian Ash, director of research at BullionVault.
“Over-priced stock markets are wobbling, global growth is slowing hard, and political uncertainty is worsening.”
“We are operating in an environment in which safe assets are scarce … Investment demand will continue to flow to gold because capital is seeking shelter from negative real yields,” said TD Securities commodity strategist Daniel Ghali.
Setup for the crypto market in coming months very bullish
Bitcoin meanwhile is holding steady above $9,000 since Tuesday. Currently, BTC/USD is trading at $9,413, up 27% YTD.
— Su Zhu (@zhusu) January 30, 2020
As can be seen, crypto markets have diverged from the equity markets ever since we entered into a new year.
While market strategist and economists were “talking up the global economic outlook and hailing 2020 as a good year for markets with no major risks on the horizon,” in two weeks the deadly coronavirus outbreak has changed that prognosis, said the former partner at Goldman Sachs, Spartan Black of crypto hedge fund The Spartan group.
With the affected cities coming to a halt, the factory output in the near term would be affected. And the “travel curbs and related impact will likely take a few bps off global GDP growth in the next 2-3 quarters. The equity markets have started to price that in. Further signs of weakness and market instability may cause central banks to spring into action,” said Spartan Black.
That means, further rate cuts and another round of quantitative easing are likely to follow with the ECB already having started its bond-buying program in Sept. All of this combined with halving event coming up, “the setup for the crypto market in coming months is very bullish,” he said.