Feb 5, 2020 - Economy & Business

Stock market rallies despite coronavirus outbreak

Illustration: Aïda Amer/Axios

Little has changed about the fundamentals since last week's selloff that was the worst in months, but bullish stock traders have bid back all of the the S&P 500's losses and sent the Nasdaq to a new record high.

What's happening: The market continues to bet on generous central banks providing stimulus to help the global economy recover from the novel coronavirus outbreak that has stalled supply chains, closed businesses and quarantined millions of people.

  • The People's Bank of China has obliged already, cutting banks’ reserve requirement ratios and pumping hundreds of billions of dollars into markets to help stabilize the Shanghai and Shenzhen stock exchanges, which fell to their lowest levels in a year on Monday.

More is expected from China in the coming days. The PBOC is seen lowering its key lending rate and continuing to pump cash into the banking system.

On the other side: Most commodity prices have seen no such rebound thus far, with oil falling by 20% from its last high and now in a bear market. Metals like nickel, aluminum and lead also have continued to fall.

  • Copper prices, seen as a proxy for expected global growth, rose by 1% on Tuesday, but are down 8.5% year to date.

Why it matters: There are not yet signs global growth will recover from the coronavirus shock, yet the Dow is trading at a price-to-earnings ratio of nearly 20 and the Nasdaq's P/E ratio is over 29, according to FactSet data.

  • Both figures are well above historical averages and even higher than earlier this year when top investment strategists warned that valuations had gotten especially high and looked poised for a pullback.
  • Stocks will likely need strong economic growth to live up to their current valuations.

Go deeper: Why the stock market keeps rising despite coronavirus fears

Go deeper

Coronavirus doesn't tell the full story behind Dow's plunge

Photo: Andrew Burton/Getty Images

As someone has certainly told you by now, the Dow fell by more than 1,000 points yesterday, its worst day in more than two years, erasing all of 2020's gains. Most news headlines assert that the stock market's momentum was finally broken by "coronavirus fears," but that's not the full story.

What's happening: The novel coronavirus has been infecting and killing scores of people for close to a month and, depending on the day, the market has sold off or risen to record highs.

Trump's post-virus, pre-election boom

Illustration: Aïda Amer/Axios

The Wuhan coronavirus outbreak is already scuttling supply chains and wreaking havoc on companies around the world that do business in China, but if analysts' projections are correct, the rebound from the virus could help propel the U.S. economy to new heights right around the time of the 2020 presidential election.

Why it matters: With President Trump touting the stock market's performance and jobs growth as key accomplishments, that bounceback could play a major role in the election's outcome.

Coronavirus fears slam the stock market

Photo: Johannes Eisele/AFP via Getty Images

Stocks saw the worst sell-off in months on Friday: the Dow Jones Industrials Average dropped 603 points (2.1%), while the S&P 500 and the Nasdaq declined 1.7% and 1.5%, respectively.

Why it matters: Despite a few jitters, the stock market had until now mostly brushed off fears about the coronavirus (the bond market, though, has not) as stellar earning results from big names like Apple, Microsoft and Amazon took center stage.