Dow falls hard in bear market and analysts say sale may be far from over

The Dow Jones Industrial average fell into bearish territory on Wednesday, and some analysts note a drop of 10% or more before the end of the sale.

The Dow Jones has lost 20.3% on an intraday basis since February 12 and just over 20% on a closing basis. A drop of 20% is considered to be a bear market territory. The S&P 500, down 4.9% on Wednesday, temporarily touched down 20% in volatile afternoon trading. It is now 19.2% from its February 19 high.

Goldman Sachs chief equity analyst David Kostin said on Wednesday that he expects the S&P 500 to bottom out at 2,450, more than 10% below its current closing level of 2,741. Kostin based his new vision on a reduced expectation for the benefits of the S&P 500.

"I'm thinking of something like 2,400," said Sam Stovall, chief investment strategist at CFRA. "If we find ourselves without profit growth in 2020, we end up with a multiple of 15 … which brings us to 2,460."

Stovall said the 20% drop in the S&P 500, if on a closing basis, would be the fastest, in data dating back to World War II. The rapid declines also ended up being followed by rapid reversals.

"The average bear market was 33%, dating back to World War II. Five of the six bear markets which included very rapid declines to 20% ended up being well below average," he said. . "Six out of 12, because they ended up falling so fast, their ultimate trough only ended on average 25%." That means there could be a quick rebound from the bottom , once it is reached, he said.

"It's like tearing off a bandage. The faster you do it, even if it's a bigger shock, it's finished faster," he said.

As the coronavirus spreads, fears grow that its economic impact is also potentially greater and that corporate profits suffer more.

Jonathan Golub, chief US equity strategist at Credit Suisse, said he now sees an 8% contraction in S&P second quarter profits and a 2.1% decline in the third quarter. In the fourth quarter, he expects to see profits rebound and grow 10.1%.

Golub reduced its estimated earnings per share for the entire S&P 500 for 2020 to $ 165, from $ 175, a drop in expected growth of 6.2% from 0.2%.

The market is increasingly concerned about the slow reaction of Washington to the spread of the virus. Economists say the Fed is taking action and should take more, but a fiscal response is needed to avoid a recession. According to one economist, targeting sectors that are hard hit, such as airlines and cruises, would be helpful. In addition, assistance to the unemployed is also expected.

But so far there have been no firm plans, although the White House is expected to release its full proposal soon and the House is passing legislation to help workers on Thursday.

Ed Keon, chief investment strategist at QMA, said he expects more sales, but the amount is hard to predict. "It is difficult to put a number. Only a fool would try to say that it is low, but does that mean that it is still 5% or less? It is difficult to say. It will depend on factors that we don't yet know. " Our base scenario right now is a shallow recession in the United States "

The strategist expects the second and third trimesters to bear the brunt of the successful spread of the virus. By summer, the consensus is that the virus should have peaked and that the economy should stabilize and rebound by the end of the year.

"We have done considerable damage, and there is value created. It's not like stocks are so cheap, you have to buy them. I don't think it's the end of the world" said Keon. "The market looks at this and says it could be a major problem. Tough action to protect the public, combined with monetary stimulus, could stop the decline. And if we see the number of cases start to peak, then it could take a while, I think we could rally. That's what it will take. You really need to have a public policy response. "