Is this the end of the bull market?
It’s a sea of red out there. Mostly everything is down today.
Overnight, US stock indices plunged over 9%, European over 12%. The S&P/ASX 200 has plummeted today by 6%, at time of writing.
Oil is down. Gold and silver are down.
Even shares for companies that, in theory, could be profiting from the coronavirus outbreak are down, like Zoono Group Ltd [ASX: ZNO], a company that makes hand sanitiser. At time of writing the company is down by 11.55%.
There is a lot of panic out there and not much information.
One of the few green blips out there today is the CBOE Volatility Index VIX, or fear index, which overnight soared by over 40% to 75 points.
Source: Yahoo Finance
Why is VIX up today?
The VIX volatility index or ‘fear index’ is a good way to measure where investors stand on risk. Low volatility means that they are willing to pay low fees to protect their portfolios. In other words, investors are confident that stocks won’t fall.
A higher VIX means investors are worried. And there is definitely a lot of worry there with the coronavirus outbreak and the oil price war.
The stock market has been flying high for 10 years now.
Things have been good. They have been good for so long that investors started to believe things would stay the same.
Just last December, Bloomberg reported:
‘Exchange-traded fund investors are throwing caution to the wind, betting the S&P 500’s record run isn’t stopping anytime soon.
‘Short interest as a percentage of shares outstanding on the SPDR S&P 500 ETF Trust — a rough indicator of bearish bets on U.S. stocks — fell to as low as 2.4% this week, according to data from IHS Markit Ltd. […]
‘Optimism is increasing among fund investors after the S&P 500 surged 11% in less than three months, bringing its total return this year to 30%. In a December analysis of institutional money managers from RBC Capital Markets, those describing themselves as “bearish” dropped to 15%, the lowest level since the third quarter of 2018.’
Things have certainly changed quickly.
Uncertainty is starting to creep in…and we are already hearing some talk of recession.
It’s why we are seeing a lot of volatility — and expect more to come.
What could happen next?
Things may have been good for the stock market over the last 10 years, but this has been one of the slowest recoveries.
Central bankers flooded the economy with money after 2008 through unconventional policies, but this didn’t really create growth. Instead, their policies have created a huge asset bubble.
Much of the spending we have seen in the last decade hasn’t been driven by higher salaries or growth, but by wealth coming from asset appreciation.
The coronavirus could be the trigger that pops this asset bubble. And here is where the danger lies.
It’s something Harry Dent has been warning about for a while now. In a recent interview with The Rum Rebellion’s editor Greg Canavan, Harry talks about how this could affect Australia and what could happen when this asset bubble bursts.