Apr 9, 2020 - Economy & Business

Investors see more volatility ahead as coronavirus hammers markets

Illustration: Eniola Odetunde/Axios

The stock market continues to bounce back and analysts and investors are lining up on opposing sides of the market's big new question — whether stocks have hit the bottom. The one thing they both agree on is that there will be significant volatility ahead.

On one side: The rebound from this recession may come at warp speed because the fall came at warp speed, Jim Paulsen, chief investment strategist at the Leuthold Group, tells Axios.

  • The extraordinary speed at which the market has sold off combined with the response from the Fed and government support could mean March 23, when the S&P 500 had fallen 33% from its previous record high to 2191, set the low.

What it means: In a typical recession, economic data slowly start to worsen and often the stock market reacts slowly to the evidence.

  • Only when enough data clearly convince everyone that a recession has arrived does the stock market ultimately suffer a major collapse, and policy officials finally reverse course with "aggressive shock-and-awe policies" to stop the bleeding.​
  • This year, by contrast, "The stock market did not do the normal bear market foreplay — it just went right to the end right away. So did bond spreads, commodities, real yields, and importantly, so did policies," Paulsen says.

On the other side: The damage from the pandemic and nationwide business shutdown is not yet quantifiable, and companies have provided no numbers to suggest that the hits they've taken to their earnings even justify the market being as high as it was on March 23.

  • There has been little in the way of positive economic data and the U.S. may already have lost all 20 million of the jobs the economy gained back during the 11-year recovery from the 2007–2009 recession, Alicia Levine, chief strategist at BNY Mellon Investment Management, tells Axios.
  • "This is an enormous, enormous blow that will take some time to recover from."

Plus, the market's 23% rise since March 23 is actually a contrarian indicator, Levine argues.

  • "Bear markets don’t end when everybody’s looking to buy the dip. Bear markets end when sentiment’s pretty negative and people are rushing out."

The big picture: Bullish investors are starting to dip their toes back into the market, bears are still expecting the worst, and sentiment is being wholly dictated by the latest developments of the coronavirus. That means big moves are likely to continue for some time.

Expand chart
Data: FactSet; Chart: Axios Visuals

The VIX, which tracks the stock market's expectations of volatility based on S&P 500 index options, has been consistently declining from the record high of 85 it touched on March 18 to just over 43 at market close on Wednesday.

  • But even the latest levels are historically high and around triple the market average for the past five years.
  • "The VIX at 45 is telling you that there are 2-3% swings every day," BNY's Levine says.

Go deeper: 1 in 10 Americans believe economy will never return to normal from coronavirus

Go deeper

Rising home sales show Americans are looking past the coronavirus

Illustration: Aïda Amer/Axios

Americans are behaving very differently than they have in previous recessions — convinced that the coronavirus pandemic will soon pass, many continue to spend money as if nothing has changed.

Driving the news: The latest example of this trend is the Commerce Department's new home sales report, which showed home sales increased in April despite nationwide lockdowns that banned real estate agents in some states from even showing listed houses.

PPP failed to get money to industries and areas most in need

Data: U.S. Small Business Administration; Chart: Naema Ahmed/Axios

The Paycheck Protection Program (PPP) "appears to have missed the mark," S&P Global chief economist Beth Ann Bovino writes in a research report to be released today.

What it means: The PPP's first round largely skipped over states and industries that were the most in need, while the second round still has 39% of allocated cash remaining, even as many businesses are at risk of permanent closure.

Mark Zuckerberg: Social networks should not be "the arbiter of truth"

Photo: Drew Angerer/Getty Images

Facebook CEO Mark Zuckerberg argued on CNBC's "Squawk Box" Thursday that social media platforms should not police political speech, and that "people should be able to see what politicians say.”

Why it matters: Zuckerberg was responding to Twitter's decision this week to fact-check a pair of President Trump's tweets that claimed that mail-in ballots are "substantially fraudulent."