Monday was a rough day for U.S. investors. Tuesday wasn’t much better. There is no ducking that. The spread of the coronavirus outside of China is spooking a lot of people.
The pain is widespread. The U.K.’s FTSE 100 Index (.FTSE) dropped 3.3% Monday. Hong Kong’s Hang Seng Index (.HSI) fell 1.8%, while the Dow Jones Industrial Average (.DJI) slid 3.6% Monday and an additional 3.2% Tuesday. The S&P 500 (.SPX) fell 3.4% and 3% over the two days, respectively. The Nasdaq Composite Index (.IXIC) dropped 3.7% and then 2.8%.
The Dow’s 1,032-point decline Monday was the third-largest point drop ever. The 1,911 two-day point drop is the worst ever recorded. That all sounds ominous, but there are some encouraging signs in the battle with the virus. Recovery rates are on the rise—albeit based on data reported from China. Figures on recoveries from other countries are the next thing to watch.
Steve Englander, head of currency research and North American macro strategy at Standard Chartered, went so far as to call Monday a “very average risk-off day.”
“The 24 February movements were normal for risk-off episodes,” Englander wrote in a Tuesday research report. He was looking at global currency markets. The Japanese yen and the Swiss franc are haven currencies, according to Englander, those that people buy when times get tough. His take-away from Monday? “So far, so bad—but nothing abnormal.”
That is comforting. And a little surprising. But he has a point. Dow point declines make headlines, but the percentage changes are what matters more to investors.
The prior two declines in the Dow of 1,000 points or more occurred in the same month: February 2018. In fact, half of all the top 10 point declines occurred in 2018. That was a bad year for the Dow, but it wasn’t a disaster.
The index’s 30 component stocks lost investors about 4% that year, but the large daily declines experienced early in 2018 didn’t end up derailing the long-running U.S. bull market.
What investors need to focus on now is recovery rates for people infected with Covid-19, the coronavirus.
“New cases of Covid-19 outside China relative to resolved cases—cured plus deaths—needs to fall below 1.0,” Stifel managing director Barry Bannister tells Barron’s. “This would have to be more than a single day’s worth of data” to affect stocks.
Monday, the World Health Organization reported 300 new cases outside of China and six deaths. Sunday, the numbers were 347 new cases and six deaths. Before the weekend, new coronavirus cases reported daily outside of China were running between 100 and 200.
Recovery rates outside of China aren’t widely reported yet, but they are rising inside of China. “The proportion of patients who recovered from the novel coronavirus pneumonia in China had increased to 10.6% on Feb. 11 from the lowest 1.3% on Jan. 27,” Mi Feng, an official with the National Health Commission, said on Feb. 12.
That is older data. And Bannister, for his part, wants to see data from outside China. The market is more comfortable with numbers generated elsewhere.
The market, and the world, would love to see recovery rates rise.
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