This article was originally published on ETFTrends.com.
After two massive down days in a row, and a huge overnight selloff on Tuesday, completing the worst drop since 2018, stock markets are attempting to stabilize in Wednesday trading.
Although volatility is still more than double what it was a few days ago, stocks are trying to stabilize after being spooked by the rapid spread of the coronavirus, and concerns from the World Health Organization that the contagion is likely to soon become pandemic.
“We are asking the American public to work with us to prepare for the expectation that this could be bad,” a top CDC officials told reporters in a conference call outlining what schools and businesses will likely need to do if the COVID-19 virus starts to spread throughout the U.S.
After climbing nearly 1.5% higher, stocks relinquished most of their earlier Wednesday gains as the 10-year Treasury yield traded close to record lows again, amid concerns over the coronavirus spreading even further.
The Dow Jones Industrial Average closed down 123.77 points (0.46%) at 26,957.59 points on Wednesday. The 30-stock average briefly turned negative around midday. The S&P 500 is also quickly ceding gains after rallying more than 1% to start off Wednesday’s session. The Nasdaq Composite remained 0.6% higher after rising 2%, holding up the best of the three major bell-weathers.
Stock indices opened down roughly 3% on Monday from where they finished last week, losing more than 3% of their value within minutes of the opening bell. The losses were generally expected, with Dow futures down more than 800 points earlier in the day following reports that the coronavirus outbreak had deteriorated considerably in China and was starting to more rapidly spread a variety of other areas like Italy, Iran, South Korea and beyond.
On Tuesday, which is often a turnaround day for stocks following significant losses, the market started off in positive territory, after making moves higher overnight. However, these gains were short-lived, and fear quickly overcame investors as markets plummeted to fresh lows, reaching losses of more than 9% in the S&P 500.
“The second-largest economy in the world is completely shut down. People aren’t totally pricing that in,” said Larry Benedict, CEO of The Opportunistic Trader, adding a 10% to 15% correction in stocks may be starting. He also said some parts of the market, particularly large-cap tech stocks, appear to be over-owned. “It seems like there’s much more to come.”
Many investors and analysts are still irked by the precipitous drop stocks underwent over the last four days amid coronavirus panic, and are now predicting that this could be the beginning of a serious correction.
“Unfortunately, I think this is going to turn into a full-blown correction,” David Bianco, chief investment strategist for the Americas at DWS, told CNBC’s “Squawk Box.” “It’s a material impact to our earnings outlook and it’s probably going to be another year of flatish earnings growth.”
“Investors need to be prepared for the risk of a market correction,” Pramod Atluri, a portfolio manager at Capital Group, said in an email. “It should not come as a surprise that heightened global uncertainty – like news about the further spread of coronavirus and its impact on global supply chains – can hurt valuations which in some areas look priced to perfection.”
For savvy investors with an appetite for risk, the Direxion Daily S&P 500 High Beta Bear 3X Shares (NYSEArca: HIBS) and the Direxion Daily Dow Jones Internet Bear 3X Shares (NYSEArca: WEBS) are just two of the many inverse ETFs that can be used to capitalize on falling markets.
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