Coronavirus Fears Fuel U.S. Equity Market Selloff

Today the markets reacted fearfully to the ongoing coronavirus outbreak resulting in deep declines U.S. equity indexes, while being highly supportive of the safe haven asset group including gold and silver. Although it is believed that the coronavirus is much less deadly than SARS, it is likely more contagious because of that fact. Since individuals contracting the disease are able to recover, they are also able to continue to spread the disease to others.

According to Quentin Fottrell, a personal-finance editor at MarketWatch, “Two months into the epidemic, the coronavirus has not proven to be as deadly as the SARS virus. That, however, may also help explain why it’s spreading so quickly. It has an incubation period of up to two weeks, which enables the virus to spread through person-to-person contact.”

Currently the virus is responsible for at least 213 confirmed deaths in China and 9,692 infections worldwide, this according to China’s National Health Commission. The World Health Organization today reported that there are also 98 confirmed cases in 18 countries, with person-to-person transmissions in Germany, Japan, Vietnam as well as the United States.

The potential for this virus to dramatically affect global economic growth was definitely a major component of today’s dramatic selloff in U.S. equities.

The Dow Jones Industrial Average lost 603.41 points, which is a net decline 2.09%. The NASDAQ composite lost 1.61% in value as it dropped 149.76 points, and the S&P 500 index lost 1.77% dropping 58.14 points and settling at 3225.52.

Reciprocally safe haven assets had moderate gains today, which were also strongly aided by dollar weakness. The dollar index lost over ½% in value today and is currently fixed at 97.18. This was the defining factor in spot gold today which closed at $1588.60. According to the Kitco Gold Index (KGX), $8 of today’s gains were a direct result of dollar weakness. Normal trading provided the other $6.80, which combined totaled the $14.80 gain.

Gold futures gained $5.50 and the most active April 2020 contract is currently fixed at $1594.40. April gold traded to a high today of $1595.50, and a low of $1575. Silver remained rather flat gaining approximately $0.04 and is currently fixed at $18.03.

The uncertainty as to how deeply the coronavirus will affect the global economy is based upon whether or not worldwide health organizations can effectively slow down the spread of the virus. Most importantly it will come down to whether or not the biotech pharmaceutical industry can create a vaccine for this virus.

At least a dozen small companies have announced they are currently attempting to create a vaccine. Although antiviral therapeutics can be used to prevent or treat the coronavirus, at this point there is no vaccine which can eradicate the virus’s ability to infect individuals.

Wishing you as always, good trading,