- Monday's stock plunge is attributed to a change in sentiment over the coronavirus.
- Blackstone veteran Byron Wien said some European countries could enter a recession.
- However, global growth for 2020 could still come in positive.
Global stocks plunged Monday as the coronavirus continues to spread across the world. According to one of Blackstone’s most veteran executives, 87-year old Byron Wien, the plunge is mostly due to a shift in investor expectations.
Coronavirus A Different Headwind
Over the weekend, it became a bit more obvious that the coronavirus won’t come under control in the second quarter — as previously expected, Wien said on a CNBC interview. Instead of a belief that the virus is mostly contained in China, the number of people infected in South Korea is in the hundreds and Italy reported coronavirus-related deaths.
Over the past few weeks, global central banks were taking action to “ameliorate” the economic impact of the virus. But the general consensus this week is that any action isn’t enough. Investors can now expect European economies to enter a recession.
Overall, global economic growth is still projected to remain in positive territory, despite a revision from prior estimates of 3% growth, he said.
Markets Always Vulnerable
U.S. stocks are merely 4% removed from historic all-time highs and Wien said by default this makes the market vulnerable to a 5% to 10% correction. Monday’s declines would put the correction near the low-end of the decline range but it is far from “the end of the world” for investors.
“What we are seeing is a correction in an ongoing positive market,” he said. “I think that’s where we are right now.”
In no way is Monday’s decline any indicative a bear market is forthcoming, according to Wien. A bear market is defined as a 20% retreat from recent highs.
Instead, Wyon said, the selloff is merely a correction attributed to global fundamental developments which will ultimately be corrected — although later than previously hoped. At that point, the markets can resume its positive course.
Monday’s plunge also follows U.S. Senator Bernie Sanders emerged over the weekend as the frontrunner to represent the Democratic party in the 2020 election, Wien said. In terms of stocks, current President Donald Trump would be the favorite over Sanders, and a Trump re-election would be preferred by the market.
Regardless, Sanders will be able to put up a good fight and he is backed by widespread support, he said. Assuming the independent senator from Vermont is polling ahead of Trump ahead of the election, this “might be” reason enough for stocks to enter a bear market.