US stocks rally as investors try to price coronavirus damage
US stock markets rallied soon after the bell and European equities recovered from sharp early falls as investors weighed up the effect coronavirus on the global economy.
The Nasdaq index, which is dominated by global tech companies, jumped 1.8 per cent soon after Wall Street opened. The S&P 500 followed suit with a 1.5 per cent rise, while the Dow Jones also rose 1.4 per cent.
Europe had suffered a bleak start to the day, with indices down as much as three per cent, but regained ground by mid-afternoon.
The UK’s FTSE 100 stood only marginally lower this afternoon, while Germany’s Dax was down 0.2 per cent and the pan-European Eurostoxx 600 was 0.1 per cent lower.
Superstar investor Mohamed El-Erian of Allianz said the market fluctuations were due to “typical of a market tug of war between still-worrisome fundamentals” and investors’ natural inclination to purchase stocks when they look cheap.
Trevor Greetham, head of multi asset at Royal London Asset Management, said: “Markets have a strong tendency to overreact.” He said his firm is “buying the dip in our multi asset funds, moving to a high conviction overweight position in stocks”.
The S&P 500 plummeted three per cent yesterday, taking its losses to eight per cent since last Wednesday.
Investors have been particularly spooked by the spread of the virus – now called Covid 19 – to Europe. Italy has been particularly hard-hit, and today suffered its 12th coronavirus death.
Paul Eitelman, senior investment strategist at Russell Investments, said: “Reports in recent days of new outbreaks in Beijing, Italy, South Korea and Iran have investors worried about a deeper and more durable threat to the global economy. And these fears are not unfounded.”
Eitelman said stocks “should likely find a bottom once it can be credibly determined that the virus has been contained”. However, with cases rising in Europe, the Middle East and other regions, investors fear this point could be a long way off.
As US markets rose, traders eased off the purchasing of safe-haven assets such as US bonds. The yield on the 10-year US Treasury rose marginally to 1.357 per cent, although this was still close to record lows. Yields move inversely to price.