Major indices remain in the red amid the coronavirus outbreak

Invesco Global Market Strategist Brian Levitt joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi, Jared Blikre and Emily McCormick to discuss the latest market action.

Video Transcript

ALEXIS CHRISTOFOROUS: We have got a stock futures rally underway. We'll see if we can hold on to this rally throughout the trading day. You start the new trading week on Wall Street.

Let's check in with Jared Blikre to take a look at what he's watching with a couple minutes to go here before the opening bell. Jared.

JARED BLIKRE: Hi, Alexis. Yeah, we saw tons of volatility in the overnight market, and I'm just dialing up the YFi interactive right now. We'll get a couple charts going.

You know, the futures had been lock limit down-- these are stock futures we're talking about here-- overnight. They opened up the session extremely weak. And then when the Fed announced its measures to extend QE, to make it open ended and also to support the market by borrowing-- by buying bonds, it just took off. We saw a 6% move in S&P futures, and we'll pull up a chart right now.

And we can see we're giving back some of those gains right now. So here's that huge spike, and now we're coming off just a little bit from that. But other markets are also moving-- making big moves this morning, and we'll take a look at those. So here we have gold futures up 2 and 1/2%. Now they got a nice jolt from the Fed announcement itself. This is a 10-day look. If we look at the overnight, we can see that spike up right here.

We can also see that in WTI Crude futures. They were as low as $22 overnight. We have switched over to the May contract, and we can see that they got that spike up but are off the highs right now.

And then going up, we can also see the 10-year T-note yield. Now that had been down about 16 basis points. It's now down only seven basis points. And people had been flocking into bonds but not as much now, and part of that move is because of the--

ALEXIS CHRISTOFOROUS: Jared, I'm going to stand by one second.

JARED BLIKRE: --Fed intention--

[OPENING BELL]

ALEXIS CHRISTOFOROUS: And that is something we haven't seen in, I think, ever, the New York Stock Exchange opening bell. And this is the first time the floor of the exchange has been closed since 2012 with Superstorm Sandy when the iconic trading floor of the New York Stock Exchange had to be shut down. We saw the opening bell. We didn't really see anything-- much of anything. We did hear the opening bell, though.

We saw stock futures rallying into this session, and it looks like the market is going to open higher. Jared, do you have the latest on any of the numbers as we open here?

JARED BLIKRE: Yeah, let me-- let me pull this up here. I was looking at S&P 500. It looks like-- so if I can just share this with you. It'll take just a minute here. I'm looking at a Dow Jones heat map. We can see most of these stocks are in the red right now. And just give me one second and I will punch this up for you, and here we go.

All right, so you can see Microsoft in the upper left, that's down 1.7%. Apple is down 2%. Walmart is up half a percent. J&J down about 3%. So mainly some red action across the board here.

We can take a look at the sectors. We can see communications services in the upper left is down half a percent, but that is the greatest outperformer followed by staples and health care and then tech. And then to the downside, in the lower right we can see energy and utilities both down over 2% along with industrials as well. Those are the big laggards of the day.

And then we can also take a look at the markets that are moving here. Dow is now down 415 points, 2%. Now we had been tracking this huge surge in stock futures after the Federal Reserve announced its plan to make open-ended QE along with other measures to support small businesses, and some of those gains have been given back. So we now see the S&P 500 down about 2% here in the early going.

ALEXIS CHRISTOFOROUS: All right, well, so much for that nice rally we saw there in the premarket, Jared. Emily, I want to check in with you. Is this really about, OK, investors saying great. The Fed is doing all that it can, but on the other side of the coin, we're not seeing the fiscal policy come through from lawmakers. They failed to reach a deal on this $2 and 1/2 trillion package yesterday. It's going to be up on a vote again today. Is that what this is about, the fact that investors don't feel confident getting into this market because they feel there's not a cohesive effort between fiscal and monetary policy at the moment?

EMILY MCCORMICK: Yeah, Alexis, I think that's definitely one piece of the puzzle here. And if we think about it, we've had analysts come on the shows and say over and over again that this COVID-19 outbreak really is an epidemiological issue. It's not something that any Band-Aid measures on fiscal-policy side, on the monetary-policy side are ultimately going to be able to tackle. It's something that really is a public-health crisis.

And until we start seeing those numbers go down domestically and abroad sort of in the way that we've seen a flattening of new cases in China, we're not necessarily going to see that rebound in stock-- in the stock market. And even when we do get that rebound, it could be a V-shaped recovery, or it could be something that is a lot more muted and would be a little bit more disappointing to see after this sharp sell-off.

ALEXIS CHRISTOFOROUS: All right, Brian Sozzi, I'm curious to see what is trending on the Yahoo Finance website this morning. What have you got?

BRIAN SOZZI: Yeah, Alexis, I'm looking at Hanesbrands. Both are rallying pretty hard in the early going. And I think it's very important for investors out there to watch these stocks with outsized China exposure. But we've talked to Hasbro CEO Brian [INAUDIBLE] many, many times. They get most of their production out of China. And as you're getting the sense that coronavirus has peaked there, some of these overly exposed China companies could start to come back.

I would also highlight one other thing too. I notice a lot of optimism in the markets right now after what the Fed just did, but the bottom line is we have earnings season coming up. I actually think earnings season should be postponed until later this year, save on reporting costs, but a lot of guidance is not going to be shared, and that could put pressure on the market in a couple-- in a couple weeks.

ALEXIS CHRISTOFOROUS: For sure. And you know, Brian, we heard from a number of Wall Street firms over the weekend and even some Federal Reserve Bank presidents as to really guesstimates is the best they can do at this point in terms of earnings and GDP growth. We heard from James Bullard, Federal Reserve Bank president of St. Louis, and he said we could see 30% unemployment in the second quarter and a 50% drop-- just absolutely unprecedented and staggering-- a 50% drop in GDP in the second quarter.

But he did see light at the end of the tunnel and actually said that we could see, in his words, a very robust fourth quarter and first quarter of 2021. But that's a long time for Main Street and Wall Street to wait.

JARED BLIKRE: Yeah, well said, Alexis. And it's going very hard for investors over the next couple of weeks. Let's say an unemployment rate 50%. You see GDP looking like what Goldman Sachs called out, 24%. Those numbers will be jarring for investors who might come in today and buy a little bit off that Federal-- off this Federal Reserve news.

So you have to balance it. You have these dire economic forecasts. You have dire economic reports, but you have things potentially starting to turn the corner as you get the Fed responding and the fiscal-- and the government steps up finally and comes out with a response.

ALEXIS CHRISTOFOROUS: All right, I want to bring in Brian Levitt now. He's Global Market Strategist at Invesco and a friend of this program. Brian, thanks for being with us today. Want your take on this. We saw futures rallying after the Fed took those aggressive steps this morning, but once trading actually started, we saw the selling resume. Why wasn't that enough to bring back a little confidence into this market? OK, I think we're still trying to get him. I apologize for that. We're going to try to get Brian Levitt's audio up and running.

But, Jared, want to go over to you again for oil because we saw oil turn on a dime, rally after the Fed's announcement. And unlike stocks, oil was able to hang on to that rally. I see it up now-- well, off its highs but up about half a percent. What's the latest?

JARED BLIKRE: Yeah, things are changing very quickly here. I will pull up the YFi interactive. I was looking at the NASDAQ 100, actually, and things are changing with respect to the NASDAQ right here. But you asked about crude oil, so we will take a look at that. And we can see right now that it's up-- well, it's up one penny. Now it's flat.

We can look at a chart as well, get a better handle on what's happened overnight. So here's that big move on the Fed announcement here, and now we've given back all of those gains to the unchanged line. And I think all we can expect here is probably another rocky day.

Every time the Fed has come out with measures in the past, we've seen markets initially surge and then give up those gains. Not necessarily the Fed's fault, but markets just really are in a precarious position. And there's so many-- there's actually expectations of just unknowns right now. I think that's what we're saying.

So here's the Dow. It's down 346 points. S&P 500 down about 1.8%, a little bit less. And then the NASDAQ is off the least, about 0.7%. Then you look at the Russell 2000. That is down 4% now. Just a big move for the Russell 2000, and it's really been underperforming the market lately. Small businesses, of course, getting hit harder by all this coronavirus news.

And then the VIX still elevated but off of its highs from the other day, 65. Now it had spiked above 80, which is right around the great financial crisis highs of 10 or 11 years ago. And then the 10-year T-note yield, this is down 7 basis points right now. Had been down as much as about 15 basis points.

And Treasury Secretary Mnuchin was on TV this morning in an interview saying that they're going to issue a lot more 30-year bonds, and there's also been talk of them possibly issuing 50-year bonds. So that is driving yields-- at least taking some of the pressure-- the downside action in yields off right now. Alexis.

ALEXIS CHRISTOFOROUS: All right, Jared, and we should mention that stocks here are trading without the New York Stock Exchange trading floor being open for the first time ever. It has gone completely digital as it too closes down during this pandemic.

I believe we have Brian Levitt now, Chief Market Strategist at Invesco with us. And, Brian, why isn't this market confident enough right now after all of the moves the Federal Reserve made this morning and promises to do even more? Why wasn't that enough to continue that rally we saw in stock futures into the regular trading day?

BRIAN LEVITT: Well, ultimately it needs to be a three-pronged approach. So it's not just monetary policy. It's on the fiscal side, and we'll see-- we'll have greater clarity hopefully as this day progresses-- if not, then as the week progresses around what the fiscal stimulus is going to look like.

And, you know, ultimately it's going to come down to, in many ways, the medical community getting out ahead of this. So we know the Fed is there to prevent a full-blown credit crisis. And they are all in, and that is a very good sign and a far cry from where we were perhaps just a week ago.

Fiscal stimulus is the next leg of the stool, and it seems that is coming. And it's going to have to be big, and it's going to have to be quick.

And then, you know, I think markets still don't like the uncertainty of cases rising in the United States. We haven't seen the number of new cases curve bend in Italy yet. So all of that is weighing on markets.

But we're making progress. We've come a long way in a week.

BRIAN SOZZI: Brian, a lot of investors are waking this morning [INAUDIBLE] the Fed are truly, truly pulling out the bazooka. For investors, what are some sound investing principles right now?

BRIAN LEVITT: Well, I think the most important thing is that, you know, investors have-- I would be watching the financial conditions. I would be watching, you know, what are inflation expectations doing? What is the dollar doing? What are high-yield spreads doing? That will give you a better sense if the Fed is having its intended effect.

And then, you know, ultimately, you know, investors, I still think you're going to want to be higher quality. You're going to want to be true growth companies. I don't-- I don't think this is the time to try and be cute, trying to time when to pivot from the more defensives to the cyclicals. I think you want to be buying equities. To the extent that you're investing money right now, that's going to set you up for the long term. There's a lot of good, high-quality growth companies that have taken a bit of a beating or a large beating over the last number of weeks.

ALEXIS CHRISTOFOROUS: You know, Brian, I know that you did some analysis on past bear markets, analyzing from the peak to the trough periods and what would have happened if you had made a hypothetical $100,000 investment. And I'd love for you to share that with us because I think-- I think the outcome was pretty encouraging, and we can use that right about now.

BRIAN LEVITT: Yeah, so what we were trying-- a lot of people are asking me, is it time to buy? And, of course, I'm watching that Financial Conditions Index to get a better sense of whether we're moving into a new cycle. But the analysis that we did is let's just say in a bad-case scenario that you were to invest now and there was-- you know, and we were only halfway through this bear market. What we found is that, you know, you would expect if you put $100,000 in, you would expect another significant leg down in markets if we were only halfway through. But what we found on average over the six big bear markets since World War II that, on average, you would be at $200,000 10 years later. So that's a double. That's 7% a year.

So even if you are investing and we're only halfway through, for long-term investors, again, it's the time in the market. And ultimately, you know, 10 years later if you had that type of time horizon, we saw it double, which was-- which was certainly encouraging.

BRIAN SOZZI: Brian, you know, I think we're all trying-- there's a lot of crazy forecasts going out there from the sell side, some forecasts I've never seen before. How much lower, realistically, do you think we can go? We're already seeing stocks reverse here in the early going after the Fed news. What's the ultimate downside risk?

BRIAN LEVITT: Well, I think you would want to look at what equity valuation multiples do in recessionary bear markets. And so you can see, you know, a 30% decline. I think we've done a lot of that. I mean, the equity-- the multiples are very reasonable now.

And then ultimately what this means for earnings-- and that's going to depend on, you know, how quickly we get this economy back running again and the type of support that's provided by the federal government. So, you know, in a bad-case scenario, you know, earnings go from $165 to, you know, $120 and you put a, you know, a 15 multiple on that. You could see what a downside potential for markets is. The question is do we start to assign a higher multiple to this given the extent of stimulus that starts to form and given how cheap stocks are to bonds?

So, you know, I would say investors should have in their mind that there could be potentially more downside to equities. I would try and stay out of the-- you know, this is-- you know, this is going to be depressionary and, you know, earnings are going to collapse completely. I mean, I think the policy response is going to be very, very aggressive, and we hope that the medical community starts to get out ahead of this.

ALEXIS CHRISTOFOROUS: All right, Brian Levitt of Invesco, thanks for being with us this morning.

BRIAN LEVITT: Thank you.

ALEXIS CHRISTOFOROUS: We appreciate it.

And I want to bring you some breaking news now as news is moving very quickly here this morning. Zillow saying it will suspend home buying in all 24 markets where it operates as it responds to local public-health orders resulting from COVID-19. So again, Zillow suspending home buying in all 24 markets.

Of course, the irony here is interest rates, mortgage rates so low. This would mean a [INAUDIBLE] housing market but not under these conditions during a pandemic.

The market not reacting well here despite the fact that the Fed has made some aggressive moves this morning to help pump liquidity into the bond market. We have the Dow industrials off more than 500 points just a few minutes into the trade day.