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Wall Street Has Lost Its Nerve. What Will It Take to Get It Back? Wall Street Has Lost Its Nerve. What Will It Take to Get It Back?
(7 days later)
Wall Street has often adopted a simple playbook when facing a stock market plunge: “Buy the dip.” Not lately.Wall Street has often adopted a simple playbook when facing a stock market plunge: “Buy the dip.” Not lately.
In recent years, investors who jumped on downturns as chances to buy shares at bargain prices have profited from the move. Their buying, in turn, helped stabilize prices, snuffing out slumps before they morphed into panics.In recent years, investors who jumped on downturns as chances to buy shares at bargain prices have profited from the move. Their buying, in turn, helped stabilize prices, snuffing out slumps before they morphed into panics.
But last week, as coronavirus cases turned up around the world and new information kept pouring in — photographs of deserted business districts in Milan, a stark warning from an official at the Centers for Disease Control and Prevention on Tuesday, news that a single Google employee in Switzerland had tested positive for the virus on Friday — big investors across Wall Street lost their nerve, interpreting the steep fall in share prices not as an invitation to go bargain-hunting but as a reason to dump more stock.But last week, as coronavirus cases turned up around the world and new information kept pouring in — photographs of deserted business districts in Milan, a stark warning from an official at the Centers for Disease Control and Prevention on Tuesday, news that a single Google employee in Switzerland had tested positive for the virus on Friday — big investors across Wall Street lost their nerve, interpreting the steep fall in share prices not as an invitation to go bargain-hunting but as a reason to dump more stock.
“This is one of the few times in recent history where we’ve seen them meeting that with selling and not buying,” said Mike Lewis, head of U.S. equity cash trading at Barclays, referring to big investors like hedge funds and pension funds that tend to employ sophisticated trading strategies.“This is one of the few times in recent history where we’ve seen them meeting that with selling and not buying,” said Mike Lewis, head of U.S. equity cash trading at Barclays, referring to big investors like hedge funds and pension funds that tend to employ sophisticated trading strategies.
The result: the worst weekly rout for stocks since the 2008 financial crisis.The result: the worst weekly rout for stocks since the 2008 financial crisis.
The coming week will be another test for investors. Wall Street culture fetishizes forecasts and figures. Analysts and investors are rewarded for their ability to correctly gauge risk, incorporate those assessments into accurate forecasts and then make trades based on them. As a result, investors despise uncertainty, because it makes it difficult to generate good guesses about the future.The coming week will be another test for investors. Wall Street culture fetishizes forecasts and figures. Analysts and investors are rewarded for their ability to correctly gauge risk, incorporate those assessments into accurate forecasts and then make trades based on them. As a result, investors despise uncertainty, because it makes it difficult to generate good guesses about the future.
And uncertainty is pervasive right now. The coronavirus — highly contagious, with new cases emerging daily, and millions still facing lockdowns in the world’s second-largest economy, China — is creating exactly the kind of unpredictability that makes investors fret. There is little clarity about how long it will take governments and health officials to contain the virus, leading to a gloomy prognosis for global economic growth. Supply chains remain deeply disrupted. Consumer spending may suffer if daily life is disrupted by the virus.And uncertainty is pervasive right now. The coronavirus — highly contagious, with new cases emerging daily, and millions still facing lockdowns in the world’s second-largest economy, China — is creating exactly the kind of unpredictability that makes investors fret. There is little clarity about how long it will take governments and health officials to contain the virus, leading to a gloomy prognosis for global economic growth. Supply chains remain deeply disrupted. Consumer spending may suffer if daily life is disrupted by the virus.
Markets are as precarious as they’ve been since stocks started climbing in March 2009 after the financial crisis. In such cases, investors tend to sell to limit their losses or wait for clarity to emerge, which could take weeks, if not months.Markets are as precarious as they’ve been since stocks started climbing in March 2009 after the financial crisis. In such cases, investors tend to sell to limit their losses or wait for clarity to emerge, which could take weeks, if not months.
“You need to show that the virus is under control,” said Jack Janasiewicz, a portfolio manager with Natixis Investment Managers. “Until that happens, we’re going to be in these volatile swings.”“You need to show that the virus is under control,” said Jack Janasiewicz, a portfolio manager with Natixis Investment Managers. “Until that happens, we’re going to be in these volatile swings.”
But instead, federal health officials have warned that the virus will spread. Over the coming days, Americans will probably hear updates on new infections, and perhaps deaths. (The first reported virus death in the United States, of a man in Washington State, was announced on Saturday.)But instead, federal health officials have warned that the virus will spread. Over the coming days, Americans will probably hear updates on new infections, and perhaps deaths. (The first reported virus death in the United States, of a man in Washington State, was announced on Saturday.)
Already, during last week’s panic, updates on even a single new infection were at times enough to move multitrillion-dollar financial markets. The most recent economic data has been bleak. Official Chinese surveys of activity in the factory sector released over the weekend, showed even deeper contraction than expected.Already, during last week’s panic, updates on even a single new infection were at times enough to move multitrillion-dollar financial markets. The most recent economic data has been bleak. Official Chinese surveys of activity in the factory sector released over the weekend, showed even deeper contraction than expected.
The jitters could continue.The jitters could continue.
“Anytime you see another headline, you almost instantaneously see a reaction in the markets,” said Subadra Rajappa, head of U.S. rates strategy at Société Générale in New York, said Friday. “Clearly there’s a lot of skittishness.”“Anytime you see another headline, you almost instantaneously see a reaction in the markets,” said Subadra Rajappa, head of U.S. rates strategy at Société Générale in New York, said Friday. “Clearly there’s a lot of skittishness.”
Even if, as is now expected, the Federal Reserve cuts interest rates this month, an action that has been a balm for market woes over the last decade, that may not be enough to put things back on a surer footing.Even if, as is now expected, the Federal Reserve cuts interest rates this month, an action that has been a balm for market woes over the last decade, that may not be enough to put things back on a surer footing.
“The playbook for the last 10 years, you should throw out the window,” Alan Fournier, who trades his own money through a family office in Summit, N.J. “Because this virus doesn’t care what the Fed does.”“The playbook for the last 10 years, you should throw out the window,” Alan Fournier, who trades his own money through a family office in Summit, N.J. “Because this virus doesn’t care what the Fed does.”
Updated July 7, 2020
The coronavirus can stay aloft for hours in tiny droplets in stagnant air, infecting people as they inhale, mounting scientific evidence suggests. This risk is highest in crowded indoor spaces with poor ventilation, and may help explain super-spreading events reported in meatpacking plants, churches and restaurants. It’s unclear how often the virus is spread via these tiny droplets, or aerosols, compared with larger droplets that are expelled when a sick person coughs or sneezes, or transmitted through contact with contaminated surfaces, said Linsey Marr, an aerosol expert at Virginia Tech. Aerosols are released even when a person without symptoms exhales, talks or sings, according to Dr. Marr and more than 200 other experts, who have outlined the evidence in an open letter to the World Health Organization.
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
Scientists around the country have tried to identify everyday materials that do a good job of filtering microscopic particles. In recent tests, HEPA furnace filters scored high, as did vacuum cleaner bags, fabric similar to flannel pajamas and those of 600-count pillowcases. Other materials tested included layered coffee filters and scarves and bandannas. These scored lower, but still captured a small percentage of particles.
A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico.
The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.
The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.
So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.
Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.
A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.
If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
Since the 2008 financial crisis ended, America’s decade-long economic expansion has hardly been smooth. But when growth faltered, the Fed has reliably stepped in to act — pumping new money into financial markets or cutting interest rates, or both.Since the 2008 financial crisis ended, America’s decade-long economic expansion has hardly been smooth. But when growth faltered, the Fed has reliably stepped in to act — pumping new money into financial markets or cutting interest rates, or both.
Those actions kept the economy chugging, and helped stocks rebound. The dynamic repeatedly rewarded investors who used market setbacks as buying opportunities.Those actions kept the economy chugging, and helped stocks rebound. The dynamic repeatedly rewarded investors who used market setbacks as buying opportunities.
But this time, traders, investors and analysts expect any action from the Fed to have limited impact, at least on the economy. Unlike previous periods of stress, including the U.S. government shutdown fights in 2011 or the trade war with China that started in 2018, the current crisis of confidence is tied more to epidemiology than economics.But this time, traders, investors and analysts expect any action from the Fed to have limited impact, at least on the economy. Unlike previous periods of stress, including the U.S. government shutdown fights in 2011 or the trade war with China that started in 2018, the current crisis of confidence is tied more to epidemiology than economics.
So whether the market turns around depends on those who make health policy and communicate information to the public, rather than officials who determine monetary policy.So whether the market turns around depends on those who make health policy and communicate information to the public, rather than officials who determine monetary policy.
The Fed can still help calm market fears to some extent. On Friday, a brief statement from the Fed that it stands ready to support the economy helped the market rally off the worst of its lows. More soothing words could come in the days ahead, potentially reversing some of last week’s decline in stocks.The Fed can still help calm market fears to some extent. On Friday, a brief statement from the Fed that it stands ready to support the economy helped the market rally off the worst of its lows. More soothing words could come in the days ahead, potentially reversing some of last week’s decline in stocks.
But even if markets see a short-term bounce, it could take longer to restore the investor confidence — or complacency — that pushed stocks to record highs a little more than a week ago. After all, investors just endured the second-worst week for the S&P 500 stock index since 1941 and one the fastest 10 percent declines on record. Nose dives like that are psychological events for investors as much as financial ones.But even if markets see a short-term bounce, it could take longer to restore the investor confidence — or complacency — that pushed stocks to record highs a little more than a week ago. After all, investors just endured the second-worst week for the S&P 500 stock index since 1941 and one the fastest 10 percent declines on record. Nose dives like that are psychological events for investors as much as financial ones.
“The positive economic outlook that people had for 2020 and beyond that was not realistic,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “The coronavirus helped bring that down and the stock market helped bring that down. But I don’t think you can put Humpty Dumpty back on the wall again.”“The positive economic outlook that people had for 2020 and beyond that was not realistic,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “The coronavirus helped bring that down and the stock market helped bring that down. But I don’t think you can put Humpty Dumpty back on the wall again.”
What’s most needed, investors say, is time. It will take weeks before the American public and investors have enough information to know if the country is facing significant economic disruption from the outbreak or a relatively benign scenario in which the spread of the virus is relatively quickly brought under control. It will also take weeks before the impact of the outbreak appears in economic data. Analysts will watch government economic reports for indications that news coverage of the virus, and the market’s tumble, spooked shoppers and threatens consumption, the main engine of U.S. growth.What’s most needed, investors say, is time. It will take weeks before the American public and investors have enough information to know if the country is facing significant economic disruption from the outbreak or a relatively benign scenario in which the spread of the virus is relatively quickly brought under control. It will also take weeks before the impact of the outbreak appears in economic data. Analysts will watch government economic reports for indications that news coverage of the virus, and the market’s tumble, spooked shoppers and threatens consumption, the main engine of U.S. growth.
“It is not the kind of thing that the market will quickly bounce back from,” said Ajay Rajadhyaksha, an analyst with Barclays in New York. “They will need to see evidence through the passage of time.”“It is not the kind of thing that the market will quickly bounce back from,” said Ajay Rajadhyaksha, an analyst with Barclays in New York. “They will need to see evidence through the passage of time.”
Kate Kelly contributed reporting.Kate Kelly contributed reporting.