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Novel coronavirus is hitting the financial markets hard. Here’s what we know

Economic worries sparked by the global outbreak of novel coronavirus are pushing major stock indexes lower -- down at least 10 percent from recent record highs. More than $2 trillion of value have been wiped out this week, translating to the fastest market correction to happen in 50 years. Liz Ann Sonders, chief investment strategist for Charles Schwab and Company, joins Amna Nawaz to discuss.

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  • Amna Nawaz:

    Now to the economic worries that triggered a sweeping new sell-off on Wall Street today.

    The Dow Jones industrial average plunged nearly 1,200 points, its largest single-day point drop ever, to close at 25766. The Nasdaq fell 414 points, and the S&P 500 fell 137.

    All three indexes were down more than 4 percent. They're down at least 10 percent from record highs earlier this month, wiping out more than $2 trillion of value this week. We're now officially in a market correction. And this is the fastest one to happen in 50 years.

    Liz Ann Sonders is the chief investment strategist for Charles Schwab and Company. And she joins us now.

    Welcome back to the "NewsHour," Liz Ann.

    You heard Dr. Hotez talk about all the uncertainty around the coronavirus. There are many questions we don't yet have answers to.

    Is it clear? Do we know that that uncertainty is leading to these market drops?

  • Liz Ann Sonders:

    I think it's not only the uncertainty, but the fact that the most recent experience we have with something similar was when we had the SARS outbreak in 2003.

    And I think the most important difference, and maybe why this is more severe, is that China's share in global economic growth has quadrupled. And their consumer has become a much more integral part of global consumption.

    So, that, plus the complexity of supply chains, how integrated everything has become in terms of production, that, I think, adds to the uncertainty. We don't know the timing of this, and the severity of the ripple effects is pretty significant.

  • Amna Nawaz:

    We're seeing some companies immediately affected, obviously, the ones you would expect, specifically around travel with the news of quarantines and travel restrictions around the world.

    How bad is the impact so far? And where else — how wide do you think those ripple effects will go?

  • Liz Ann Sonders:

    Well, we have seen analysts trim their estimates for corporate earnings for 2020.

    But that's with very little information from the companies, because the companies themselves aren't armed with the information to give guidance as to how big of a hit to earnings.

    So, the cuts have started. There's probably more to come. But there's really no sense of how deep we have to go before we finally see some stabilization.

  • Amna Nawaz:

    So, obviously, the severity of this drop is causing concern. The speed of this drop is also causing some concern.

  • Liz Ann Sonders:

    Right.

  • Amna Nawaz:

    But is it fair to say that, in some ways, there was a lot of anticipation that the market would pull back at some point, some kind of news event or some world event would trigger that.

    In other words, was this just a correction waiting to happen?

  • Liz Ann Sonders:

    To some degree, I think, yes.

    I wrote a report for our clients in mid-January that talked about investor sentiment having gotten probably way too complacent, too much euphoria and optimism. And that sets up vulnerability, to the extent there's some sort of negative catalyst, which clearly has been the case.

    So I think there's been this somewhat necessary re-rating and bringing down some of that optimism. Unfortunately, though, what we also have had happen is that there was a lot of momentum-driven trading happening in the market, a lot of big institutions, more professional investors that play on rising momentum.

    Well, momentum then reversed, and we have that same force now sort of chasing momentum on the downside, which means that the move on the upside may have gone a bit too far, and we could get to a point where the move on the downside goes a bit too far.

    But that's the nature of the market right now.

  • Amna Nawaz:

    So, Liz Ann, a lot of the headlines are focused on this largest point drop.

    What's important to understand about that?

  • Liz Ann Sonders:

    We really have to look at percentages here.

    I don't want to dismiss the negative feeling you get when you have a 4 percent drop. But, for instance, the crash of '87 was only 500 points on the Dow, but that was 23 percent.

    We are now in correction territory, which means the drop is more than 10 percent from a high. But, to put that in context — again, not to dismiss the pain investors are feeling — but, on average, since the inception of the S&P in 1927, we have had about one correction of that magnitude every year.

    So, we do have to put it in percentage context.

  • Amna Nawaz:

    That is Liz Ann Sonders of Charles Schwab and Company.

    Thanks for being with us.

  • Liz Ann Sonders:

    My pleasure.

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