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Dow Jones to Plunge 50% Despite Bounce, Research Warns

Last Updated September 23, 2020 1:48 PM
Simon Chandler
Last Updated September 23, 2020 1:48 PM
  • Stock markets will fall by as much as 50% because of the coronavirus, asset manager Unigestion has warned.
  • Macroeconomic indicators will sooner or later assert themselves over recent market bounces.
  • Unemployment figures, business and investor confidence, volatility indexes and mounting coronavirus numbers all predict a major stock market selloff.

The Dow Jones and worldwide stock markets will fall by as much as 50%, global asset manager Unigestion has warned. Despite recent bounces, Unigestion is predicting massive selloffs in the coming months as the coronavirus pandemic worsens.

The London-based company has also predicted a recession on the scale of the 2007-08 global financial crisis.

It’s not the only researcher predicting a stock market bloodbath: analysts TS Lombard have predicted that the S&P 500 will fall by at least 40% from this year’s highs.

Such gloomy forecasts are becoming likelier with every passing day. Volatility indexes, investor confidence levels, unemployment figures and coronavirus cases are all moving in the wrong direction. And once quarterly reports start emerging in the next few weeks, equity markets will brace for impact.

Coronavirus And ‘The Macro’ Will Reassert Themselves Over Stocks

In a conference call Wednesday, Unigestion told investors  it expects the coronavirus pandemic to result in a 2008-level recession.

Its worst-case scenario has the U.S. economy contracting 5.9% between January and December. Even its “base-case scenario” predicts a 2.9% contraction for the U.S. economy across 2020.

More disconcertingly for investors, Unigestion also warned that the Dow Jones and other international stock markets will take a pummelling. It expects modest rallies such Wednesday’s to be short-lived.

Its head of macroeconomic research, Florian Ielpo, believes that things will get worse once companies begin issuing quarterly financial statements. When they begin doing this, the true depth of the coronavirus’ economic impact will be known:

We think that the macro will essentially reassert itself and that it is going to be quite a challenging time for the markets ahead.

Dow Jones stock market since coronavirus
Source: Yahoo! 

Once the macro “reasserts itself,” Unigestion’s model predicts a big selloff. It forecasts the Dow Jones and other stock markets falling by around 50%, even under its less dramatic base-case scenario:

Prices have fallen dramatically from where they were […] but if we go back to our base-case scenario that we’re looking at something like a 2008 type shock, we think that earnings expectations still have quite a distance to fall.

No V-Shaped Recovery

Global investment analysts TS Lombard also expect the coronavirus to bring huge stock market losses.

On Monday, it predicted that the S&P 500 would fall below 2,000 . Compared to its peak of 3,386 on February 19, this would represent a decline of 40% or more.

S&P 500 stock market since the coronavirus
Source: Yahoo! 

Depressingly for anyone expecting the S&P 500 or Dow Jones to quickly bounce back, TS Lombard researcher Charles Dumas thinks there’s no chance of a “V-shaped recovery.”

The idea that Americans are simply going to snap back as if what’s going on had not happened suggests Wall-Street has ‘herd immunity’ to common sense.

There are many reasons to think that recent rallies are simply Wall Street passing through the eye of the storm.

For one, 16.8 million Americans have claimed for unemployment in the past three weeks . Business confidence is experiencing record declines.

Similarly, investor confidence — in the U.S.  and in Europe  — has been sinking to new lows in recent weeks. Without confidence, the stock market has nowhere to go but down.

CBOE’s Volatility Index has also hit levels in recent months not seen since the 2007-8 financial crisis . This undermines any suggestion that a “recovery” is underway.

And most importantly, more U.S. states are entering lockdown , bringing further economic disruption. Meanwhile, White House Coronavirus Task Force member Dr. Anthony Fauci has predicted millions of coronavirus cases and upwards of 100,000 deaths .

Although Dr. Fauci recently said that the U.S. should see the “beginning of a turnaround,” the explosion in worldwide cases suggests the pandemic will continue indefinitely.

Taken together, this is bad news for the Dow Jones, the S&P 500, and every other major stock market.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.