Worst of the Global Selloff Isn’t Here Yet

Wall Street is only now coming to grips with the dislocation being wrought by the coronavirus

The most brutal stretch for global markets since the financial crisis likely isn’t over yet, say investors and analysts who believe it is too early to assess the possible scale of economic damage from the coronavirus.

In just a few weeks, U.S. stocks have lost roughly a third of their value. In recent weeks, investors have even fled assets like U.S. government bonds and gold that typically do well during times of turmoil, underscoring the extent of the panic and the shock to once-robust investor sentiment delivered by the global health emergency.

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But many analysts and portfolio managers warn that neither those declines nor recent extraordinary actions by the Federal Reserve are likely to signal the end of the market crunch. They note that by historical standards, stocks’ declines look modest compared with some prior downturns, given the early indications of how much damage virus-related shutdowns are likely to do to global growth. The S&P 500 is down 32% from its February peak. In comparison, stocks tumbled 57% during the financial crisis and 49% after the dot-com bubble burst in 2000 before beginning to rebound.

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What’s more, some investors say, Wall Street is only now coming to grips with the dislocation being wrought by the virus. Analysts at Goldman Sachs Group Inc. said this past week they expect U.S. economic output to tumble 24% in the second quarter, one of the worst readings on record and potentially foretelling a U.S. recession even if growth picks back up in the second half of the year.