JPMorgan, Citi, Goldman Sachs All Believe There Hasn’t Been Enough Pain To Call A Bottom Yet

Fears of the coronavirus spreading outside China and a global economic downturn last week gave the stock market its worst week since the financial crisis. However, strategists at major U.S. banks haven’t called a bottom yet.

The S&P 500, Dow Jones Industrial Average and Nasdaq Composite all fell more than 10 percent, their biggest weekly declines since October 2008. The Dow had its largest one-day point decline on record and the losses sent the major averages into a correction, down more than 10 percent from all-time highs earlier in February, CNBC reported.

The virus has killed 3,249 people and there are 95,080 cases, according to Worldometer. Most deaths and cases have been in China but the disease has spread to every continent except Antarctica. The U.S. has reported nine deaths and 137 cases. In the U.S., people are canceling travel plans, conferences and hotel rooms and avoiding large gatherings. The coronavirus has affected retail businesses, manufacturing and more as it disrupts global supply chains.

Since the global financial crisis, equity drawdowns often reversed quickly and “‘buy the dip’ has been a successful strategy,” Christian Mueller-Glissmann, equity strategist at Goldman Sachs, said in a note. “It might be more risky this time.”

Investors in the U.S. have dumped their equity holdings and moved to traditionally safer U.S. Treasurys. The benchmark 10-year yield fell to a record low last week. The 30-year bond rate also traded at an all-time low.

But despite the sharp drop, there still aren’t many signs of outright capitulation in the market after last week’s sell-off, JPMorgan’s Nikolaos Panigirtzoglou said in a note.

Tobias Levkovich, chief U.S. equity strategist at Citi, agreed with Panigirtzoglou, noting: “The S&P 500′s drop has improved the risk/reward ratio but we need to see panic readings before stepping up.”

The U.S. Federal Reserve announced on Tuesday an emergency interest rate cut — the first of its kind since the 2008 financial crisis — cutting rates by half a percentage point in the face of economic anxiety over the coronavirus.

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Investors showed they were skeptical that rate cuts would be an effective tool against economic damage caused by the virus. U.S. stocks rallied briefly after the surprise announcement, then the S&P 500 and Nasdaq fell by at least 2.8 percent and the 10-year Treasury yield dropped close to 1 percent.

Investment advisor Peter Schiff predicted that the fiat currency system may not survive the next recession. The Fed’s emergency interest rate cut may be the pin that ultimately pricks the stock-market bubble, Schiff told Marketwatch.

“If it wasn’t the coronavirus, it would have been something else,” Schiff said.

Schiff is best known for calling the 2008 financial crisis. He predicted it would lead to a global crisis of historic proportions and he was right. But his “persistent and unrealized crisis narratives haven’t always played out,” Mark DeCambre wrote for Marketwatch. “He once predicted that gold would head to $5,000 an ounce, though he didn’t offer a specific time period.”