Market volatility hints at depression, says experts Strategists at Deutsche Bank said in a note last week that the market’s recent volatility, marked by the swings of over three per cent in the S&P 500, was coming at “a frequency previously seen only in

New York, March 17: The coronavirus shockwaves rippling through US stocks are forcing investors to contemplate outcomes more dire than a recession, including several quarters of declining economic activity, a credit crisis or even a depression.

The rising global toll from the pandemic and the uncertainty over how far it may spread has left investors and economists scrambling to gauge the financial fallout.

“This market looks like it has already priced in most of a garden variety recession,” said Frances Donald, global chief economist at Manulife Investment Management. “It is now on top of that having to price in some probability of a credit crisis.”

US retail sales unexpectedly fell in February, with households cutting back on purchases of a range of products, and the coronavirus outbreak is expected to depress sales in the months ahead.

At least one other big Wall Street name appears concerned that the current crisis could snowball into something bigger than a recession. Billionaire investor Ray Dalio, whose main Bridgewater Associates LP hedge fund fell sharply amid the coronavirus-led market rout, is worried that the US Federal Reserve and other central banks may have already expended a good deal of their firepower by cutting rates to near zero.

In a note on Monday, Dalio said he had been concerned that the next economic downturn would “lead to hitting the zero per cent interest rate floor with a lot of debt outstanding and big wealth and political gaps in the same way that configuration of events happened in the 1930s.”

Strategists at Deutsche Bank said in a note last week that the market’s recent volatility, marked by the swings of over three per cent in the S&P 500, was coming at “a frequency previously seen only in the Great Financial Crisis and the Great Depression.”

Following the Fed’s action, Wall Street’s focus is now on what fiscal policies governments will enact, and even more so, on what can be done to contain the virus. “Nothing else matters if we can’t get this under control,” said Eric Winograd, chief US economist at AllianceBernstein.

The market’s pullback has taken the S&P 500 down to the level it was last at in late 2018 and mid-2017.

“I don’t think it is quite pricing in a prolonged depression scenario at this stage and I think it is probably appropriate not to,” Winograd said. “That’s not the base case.” However, Winograd said he was concerned the situation could turn into a “durable recession” that stems in part from distress in the banking sector.

“If we end up in a multiple-quarter level decline, I would expect there still to be significant downside for the market.”