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S&P 500: Chances Of A Coronavirus Induced Recession Increase


  • The Coronavirus is spreading panic across the globe, causing remarkable volatility in financial markets.
  • The U.S. is not immune anymore as the unintended consequences of the virus should impact U.S. consumer spending, corporate profits, GDP, and may tip the U.S. economy into a recession.
  • The Fed's emergency rate cut and further rate cuts may not be enough to adequately stimulate the U.S. economy without further monetary and fiscal stimulus.
  • A quick V-shaped recovery is not a likely scenario anymore.
  • The S&P 500 may go through a relatively prolonged correction process that could drag the average all the way down to the 2,550-2,725 level or lower in a worst-case scenario.
  • This idea was discussed in more depth with members of my private investing community, Albright Investment Group . Get started today »

CoronavirusImage Source

On Monday March 2, 2020, we saw the biggest one-day point surge in the DJIA ever of nearly 1,300, or more than 5%. Likewise, other major indexes had extremely sharp bounce-backs as well. The S&P 500/SPX (SP500) rebounded by 4.6%, and the Nasdaq composite finished the session up by roughly 4.5%.

These are incredible gains after one of the steepest declines in U.S. stock market history. The SPX as well as other major indexes gave up around 16% from peak to trough in just seven trading sessions, something that has happened only a handful of times in recent history, since around 1950. Moreover, such steep declines lead to a recession only once out of these instances and that was in the financial crisis of 2008.

However, despite SPX's sharp nearly 10% rebound from the correction lows, the most widely watched stock market index is now about 11% off from its all-time highs achieved just 11 sessions ago. Please keep in mind that as I am writing this article, SPX futures are down by roughly 2.5%, putting the market deep in "official" correction territory once again.

S&P 500 ChartSource: StockCharts.com

Now, due to the Coronavirus' continuous spread, especially in the U.S., there is likely to be more volatility ahead, and the overall economic impact on the global and the U.S. economy is still very difficult to predict. Nevertheless, it is likely to be significant and should cause a substantial slowdown in GDP growth, consumer spending, YoY corporate sales/earnings growth, and may even tip the U.S. as well as other major economies into recessions.

What to make of the recent Fed move?

The Fed came out with an emergency 50 basis point rate cut in light of tumbling stock markets due to the Coronavirus panic. It is interesting that just one month ago

Want the whole picture? If you would like full articles that include technical analysis, trade triggers, portfolio strategies, options insight, and much more, consider joining Albright Investment Group!

This article was written by

Victor Dergunov profile picture
The #1 Service For Diversified Portfolio Profits

Hi, I'm Victor! It all goes back to looking at stock quotes in the old Wall St. Journal when I was a kid. What do these numbers mean, I thought? Fortunately, my uncle was a successful commodities trader on the NYMEX, and I got him to teach me how to invest. I bought my first actual stock in a company when I was 20, and the rest, as they say, is history. Over the years, some of my top investments include Apple, Tesla, Amazon, Netflix, Facebook, Google, Microsoft, Nike, JPMorgan, Bitcoin, and others.

Analyst’s Disclosure: I am/we are long VARIOUS STOCKS IN THE S&P 500. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article expresses solely my opinions, is produced for informational purposes only and is not a recommendation to buy or sell any securities. Please always conduct your own research before making any investment decisions.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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