South Korea and China are seeing new cases of the coronavirus, sparking fresh concerns of a second wave that Wall Street simply isn’t ready for. | Source: REUTERS/Brendan McDermid
- Dow Jones Industrial Average (DJIA) futures wiped out gains overnight.
- A potential second wave of coronavirus infections flared up in Wuhan, China and South Korea.
- Analysts say that a second wave of the virus isn’t fully priced into the stock market yet.
As the U.S. and Europe begin to re-open their economies, Asia just flashed a warning sign. A second wave of the coronavirus may have flared up in China and South Korea over the weekend. Dow Jones Industrial Average (DJIA) turned south on the news, falling 80 points (0.38%).
Wuhan, China – the original epicenter of the virus outbreak – reported five new cases of Covid-19 on Monday
. It’s the first new flare up in the city for more than a month and suggests the virus may still be circling.
It’s a reality check for the stock markets. Moody’s Analytics chief economist Mark Zandi said a second wave threatens to trigger a stock market reversal and a full economic depression.
If we re-open too quickly and we see infections rise, get a second wave… we may not shut down again but certainly it will spook people and weigh on the economy. That would be the fire for a depression.
I think the market is attaching a pretty high probability to a V-shaped recovery… But I suspect the script on this bear market is not over. We’re going to see the market have to re-evaluate at some point.
Dow futures in choppy overnight session
Dow futures struggled for direction overnight, following a week of disastrous economic data. The index dropped at the open but pushed higher during the Asian session. By early morning, U.S. stock futures turned lower again as investors try to digest the cautious re-opening across Europe and America.
Dow Jones Industrial Average (DJIA) stock market futures plunged in the early hours as coronavirus cases flare up again in Asia. Source: Yahoo Finance
A second wave of coronavirus?
Many scientists and researchers have repeatedly warned about the threat of a second wave as lockdowns ease. We’re now seeing that play out in real time. Wuhan eased lockdowns on April 18th, more than a month ago, and new cases are sprouting up.
The same thing happened in South Korea over the weekend. After beginning to ease restrictions, the country saw 35 new infections flare up
. They were all linked to one ‘super-spreader’ who visited three Seoul nightclubs. It’s feared the 29-year-old came into contact with more than 1,500 people.
It shows the delicate and difficult task of re-opening the economy while the virus is still spreading. And it may force countries to slam the brakes on their plans.
Trump nervous about a West Wing hotspot
As Asia battles with a second wave of the virus, Washington DC still has to contend with the first wave. Tempers flared in the White House this weekend as two staffers were diagnosed with the virus. Kevin Hassett, economic advisor to the president said:
It is scary to go to work.
In the cramped corridors of the West Wing, President Trump is reportedly growing nervous about the virus. Top aides are tested daily for the virus, while Trump is reportedly irritated by people standing too close to him. Three members of the coronavirus task force, including Dr. Anthony Fauci are now self-isolating over fears of coming into contact with known carriers.
Dow Jones not prepared for a second wave
The U.S. stock market is currently pricing in a very optimistic rebound in the American economy. As Fidelity’s Jurrien Timmer put it:
The market has priced in a lot of recovery. The [S&P 500] is at the high end of the fair value range.
Stocks have bounced back as the Trump administration pushes to re-open the economy. But a second wave of the virus could set things back and make traders nervous. Timmer added that he believes the stock market has ploughed its low point in March, but it could still sink lower in the coming months.
This article was edited by Samburaj Das.