Mar 2, 2020

DealBook: How to Fight That Sinking Feeling

13-16 minutes - Source: NYT

Credit...Scott Heins/Getty Images
A cure for what ails investors?
Over the weekend, the global death toll of the coronavirus surpassed 3,000, with about 90,000 identified cases in 65 countries. The U.S. reported its first two deaths from the virus, both in a Seattle suburb, while New York City disclosed its first case. The latest developments, as always, can be found in our live briefing.
Stocks can also go up — sometimes. A rare sight in recent days, markets in Asia and Europe posted gains in early trading, recovering some of the ground lost during last week’s rout. (European shares are mixed at the time of writing, and U.S. futures have tipped into the red.) The turnaround, such as it is, began when Bank of Japan issued a statement pledging support to “ensure stability in financial markets,” echoing a similar notice from the Federal Reserve on Friday. Jittery markets are expecting increasingly aggressive, potentially coordinated actions from central banks around the world. (Anybody else getting 2008 flashbacks?)
“This virus doesn’t care what the Fed does,” an investor told the NYT’s Matt Phillips. But something is better than nothing, and that could be the simple narrative behind the buying today. Even after the recent correction, U.S. stocks are trading at relatively high valuations, as measured by things like the price-to-earnings, or P/E, ratio. The hit that corporate earnings will take as a result of the virus outbreak is a matter of much debate — and if it proves worse than expected, then the “P” will follow the “E” down, possibly much further down.
It’s all about the scenarios, with forecasters building out their models for how the virus might affect economies. Today, the O.E.C.D. updated its economic forecast, cutting its expectation for global growth this year by half a percentage point, to 2.4 percent. But in the worst-case “domino scenario,” a widespread outbreak could push global growth to 1.5 percent, the worst result since — you guessed it — the 2008 financial crisis.

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