Analysts for the Wall Street firm Goldman Sachs warned Thursday in a report that the virus could disrupt factories’ supply chains, damp demand for exports and ultimately stunt economic output in China, the U.S. and elsewhere. The firm warned the impact of the contagion could wipe out any growth in the combined profits of companies in the Standard Poor’s 500 Index.
The spreading coronavirus sowed a new bout of fear among investors, triggering a stock market sell-off and flight to safe-haven assets like gold and U.S. Treasury bonds, with 47 countries now reporting infections amid widespread reports of travel cancellations, shipment delays and business interruptions.
U.S. stocks fell for the sixth straight day, Treasury yields slid to a record low and gold prices were little changed close to a seven-year high. Bitcoin’s price climbed 1.4 percent to $8,902, rising along with popular cryptocurrencies including ether.
“We have updated our earnings model to incorporate the likelihood that the virus becomes widespread”, the Goldman analysts led by Chief U.S. equity strategist David Kostin wrote.
Bank of America analysts wrote Thursday the coronavirus had “gripped global markets.” Prevailing interest rates, already at or close to historic lows and set at negative levels in Europe and Japan, are not expected to rise “until Chinese economic activity improves and there are signs of global containment.”
“While most U.S. investors have been waiting for a reversal-of-the-virus bump in the rates market, the situation has gotten worse”, the analysts wrote. “We see U.S. Treasurys as clearly the optimal choice of perceived safe-haven protection.”
U.S. President Donald Trump tweeted on Wednesday that “fake news” media outlets were “doing everything possible to make the caronavirus (sic) look as bad as possible, including panicking markets.” But as the U.S. economy faces a new risk that could hurt his reelection chances in November, Trump put Vice President Mike Pence in charge of coordinating the U.S. government’s response to the public health concerns.
Trump wanted governors and members of Congress to have a single point person to communicate with, “eliminating any jockeying for power in a decentralized situation”, the New York Times reported, citing unnamed White House aides.
This week’s sell-off in the SP 500, which tracks large U.S. stocks, left the index down 7 percent so far in 2020.
The yield on the 10-year U.S. Treasury note declined by 0.02 percentage point to 1.29 percent, a record low.
Gold futures on the New York Mercantile Exchange were little changed Thursday, close to the seven-year high of $1,662 an ounce reached earlier in the week.
Bitcoin fell earlier this week as the coronavirus fears started to hit traditional markets, leading some analysts to question the thesis that the 11-year-old cryptocurrency might serve as a safe haven from financial panic, similar to the way many investors view gold. Prices for bitcoin fell to $8,627 on Wednesday, the lowest in a month. The digital asset was born in the throes of the last global financial crisis, more than a decade ago.
But some optimism returned to the market on Thursday, with the cryptocurrency’s price rebound leaving prices up 24 percent on the year.
The billionaire investor Chamath Palihapitiya, who serves as chairman of the spaceflight company Virgin Galactic, told CNBC on Wednesday that bitcoin appears “completely uncorrelated” with other asset categories like stocks, bonds and emerging markets.
That dynamic should push investors to put 1 percent of assets into bitcoin, though they should accumulate the positions gradually, he said.
“When you wake up and see a coronavirus scare and the Dow down 2,000 points, you should not be going in and buying bitcoin”, he said. “That is an idiotic strategy.”