Dow Futures Decimated but Wall Street is Buying the Coronavirus Dip

JP Morgan analysts think the coronavirus fears will soon blow over and Wall Street will rush back into stocks.

Posted in: Market NewsOpinion
Published:
January 27, 2020 11:36 AM UTC
  • Dow Jones Industrial Average (DJIA) futures plunged more than 350 points on Monday morning.
  • The rapid spread of China’s coronavirus continues to scare investors.
  • JP Morgan says the stock market pullback is healthy and will soon present a buying opportunity.

Dow Jones Industrial Average (DJIA) futures took a brutal plunge in the early hours of Monday morning, pointing to a disastrous stock market open. As the death toll from China’s coronaries extends to 81, some traders are anxious about the impact on the global economy.

But not everyone is hitting the sell button. JP Morgan told investors to stay calm and buy the dip in equities.

Past pandemics episodes didn’t lead to sustained selling, they tended to ultimately be buying opportunities.

Analysts at Renaissance Macro Research and National Securities issued similar notes to their clients. It suggests that, while retail investors panic, Wall Street is about to swoop in and buy the dip.

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Dow futures brutal 350 point drop

Dow futures contracts collapsed by more than 350 points on Monday. The drop was triggered by increased fears of China’s coronavirus and a rocket attack on the U.S. embassy in Iraq.

Dow Jones Industrial Average (DJIA) futures were decimated over the weekend, but Wall Street funds are eyeing up possible buying opportunities. Source: Yahoo Finance

S&P 500 futures were down 1.6%. Nasdaq Composite futures fell 1.29%. Bitcoin traded at

Coronavirus selloff? Buy the dip

JP Morgan was the biggest name on Wall Street to highlight a buying opportunity, but National Securities chief market strategist Art Hogan was even more specific. Speaking to CNBC, he said the Dow could pull back 3-5%, triggered by Coronavirus fears and corporate earnings season.

My guess is… [if there is a stock market pullback] it’s going to happen right now. Next week when we have about a third of the S&P 500 reporting. We’re going to see the losers lose a whole lot more. So I think the index itself could probably pull back 3-5% and I think that would be perfectly healthy.

And if there is a decent retracement, Wall Street will start buying equities. The strategist said:

I think if we see a 3-5% pullback sometime in the first quarter, that’s going to find a lot of money.

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Healthy Dow Jones pullback from record highs

Having exploded to all-time highs in 2020, the stock market is overdue a breather.

“Coming from all time highs is the key point. We’re entering earnings season, stocks are priced for perfection. You tend to have a bit of an overreaction to bad new or ‘in line’ news when that happens” – Hogan.

The big question is whether it’s a sustained sell-off or a temporary pullback. JP Morgan believes it’s the latter, pointing to an over-demand for safe havens. In other words, traders have over-reacted to bad news.

This is the latest risk of a series that have driven U.S. Treasury yields far below what fundamentals indicate.

That money will likely shift back to equities when the coronavirus risk dissipates. As Jeff deGraaf of Renaissance Macro Research explains, this is a panic moment for the Dow Jones that will likely correct itself.

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We’ve seen outbreak panics in the past and the resulting fear-based moves in the market have been buying opportunities.

This article was edited by Samburaj Das.

Ben Brown @_ben_brown

Ben is a journalist with a decade of experience covering financial markets. Based in London, UK, his writing has appeared in The Huffington Post and he was Chief Editor at Block Explorer, the world's longest-running source of Blockchain data. Reach him at benjamin-brown.uk or on Twitter at _Ben_Brown. Email ben @ benjamin-brown.uk.

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