What’s happening: US stocks headed south once again on Wednesday, with high volatility through the trading day. The final push was given by the World Health Organization officially declaring COVID-19 as a pandemic.
What happened: Trading sessions have been characterised by heightened activity over the past few weeks. Traders are on high alert and are quick to respond to every important announcement and news report.
After a rollercoaster session on Wednesday, US stocks were pushed into the so-called bear territory (defined as a decline of at least 20% from latest peak levels) for the first time in over a decade. The sell-off was triggered by news of the WHO designating coronavirus as a pandemic.
Several factors are in play and traders are actively seeking attractive opportunities amid the high volatility.
Factors impacting markets: There is significant uncertainty surrounding the US taking adequate steps to prevent the economy from slipping into a recession. President Donald Trump recommended a cut in payroll tax on Tuesday. However, the timing of its implementation is still unclear. Markets were disappointed with the White House not releasing further details of fiscal stimulus.
Meanwhile, President Trump announced the suspension of travel from European countries to the US. The suspension is to begin Friday midnight and continue for a month.
Central banks of various countries have announced rate cuts to lessen the coronavirus impact on their domestic economies. The Bank of England was the latest to do so, announcing a rate cut of 50 basis points to 0.25%. The US Federal Reserve had also lowered its benchmark rate by half a point in an emergency move. Markets expect the Fed to announce another reduction at its meeting next week. The European Central Bank is scheduled to announce its policy decision today and markets are hoping for some strong fiscal measures from the bank, apart from a rate cut. The current ECB rate is already in the negative territory and the lowest on record.
The virus, which has affected over 114 countries and claimed more than 4,000 lives globally, has been declared as a pandemic by the WHO. This is the first time the WHO has designated an outbreak as a pandemic since the H1N1 swine flu in 2009. WHO Director General Tedros Adhanom Ghebreyesus lifted the health emergency warning to the highest level and urged all countries to take strict measures to stop the virus from spreading.
Shares in the travel sector have been the worst hit, with Delta Air Lines, JetBlue Airways and United Airlines losing at least 6%. Shares of Norwegian Cruise Line tumbled 26% on Wednesday. Banking stocks also moved lower, with Citigroup, Goldman Sachs and Morgan Stanley losing more than 6%.
Stocks closed the day in bear territory, with the Dow shedding 1,465 points to close at 23,553. The S&P 500 fell 4.89% to 2,741, with the Nasdaq 100 plunged 4.7% to settle at 7,952.
In economic news, US consumer prices rose 0.1% in February, while the budget deficit expanded to an all-time high.
What to watch: Investors are keen for any positive announcement related to the curtailment of coronavirus and from the US President regarding additional fiscal measures to support the world’s largest economy. Shorters and CFD traders are very active, as the losing streak in US stocks is expected to continue today, with stock futures pointing towards a lower open.
Economic reports on initial jobless claims and producer prices are scheduled for release later today and could contribute to market volatility. The producer price index, which rose 0.5% in January, is expected to decline by 0.1% in February.