Business

Gold at a seven-year high and bond yields flirt with record lows as fear grips Wall Street

Posted February 24, 2020 9:28 a.m. EST

— Fear has returned to Wall Street. The spread of coronavirus cases in Italy and South Korea is shaking investors out of their recent complacency.

Investors are nervous that the global economy will slow dramatically in the first quarter because of coronavirus. And they are piling into classic safe haven fear trades as a result and shunning anything that seems risky.

Stocks around the world are plunging. Gold is at a seven-year high and miner Newmont was poised to be one of the few winning stocks in the S&P 500 Monday.

Long-term bond rates are falling sharply as worries about a recession increase. The 30-year US Treasury yield is at an all-time low and the 10-year is not far from its 2016 record low of 1.32%. The price of US oil fell 5%. And the US dollar is near a 52-week high.

The VIX, a measure of market volatility that usually spikes when investors are scared, surged nearly 50% Monday and is nearing a 52-week high. And the CNN Business Fear & Greed Index, which measures the VIX and six other gauges of investor sentiment, fell into Fear territory Friday for the first time since October.

As a result of the market panic, experts are starting to wonder if the Federal Reserve and other central banks will soon be forced to cut interest rates even further.

"Investors are starting the week on the back foot and no one is ready to risk big. Traders are anxious about the global economic growth number for the first quarter," said Naeem Aslam, chief market analyst with AvaTrade, in a report. "Central banks will be pushed in the corner due to the global economic meltdown caused by coronavirus and this mean more stimulus."

Traders are now pricing in a nearly 20% chance of a quarter-point rate cut at the Fed's next meeting in March, according to futures contracts tracked by the CME. That's up from just 11% on Friday and less than 4% a month ago.

"The coronavirus represents the most uncertain macro risk markets have faced in years. As the virus spreads to Europe, the threat to global growth moves beyond China and the global supply chain and now directly threatens the heart of European manufacturing," said Alec Young, managing director of global markets research with FTSE Russell, in a report Monday.

Young added that "investors are also acutely aware that many misjudged the economic severity of the virus early on, making them more open to entertaining worst-case scenarios now."

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