Wall Street officially entered bear market territory as global concerns about the coronavirus caused stocks to tumble 20 percent since its recent high in February. WGBH News' Morning Edition host Joe Mathieu spoke with Art Hogan, chief market strategist at National Securities, to understand what's happening with the market and how investors are reacting. The transcript has been edited for clarity.
Joe Mathieu: It's looking like we could have another bumpy ride here. Can you start with the basics [of] Bear Market? When we hear that term, that means we have fallen at least 20 percent from the peak. That's not good, Art.
Art Hogan: Yeah, that's 20 percent from the recent high, which was on Feb. 19. And by the way, this is the quickest we've gone from an all time high to down 20 percent in the history of Wall Street. So not only are we down 20 percent, but we did it rather rapidly. People are realizing that the coronavirus, COVID-19, is going to cause some economic damage and are trying to recalibrate equity valuations to make sure they're priced correctly.
Mathieu: I hear a lot of talk about price discovery in the financial press this week, Art. Can you describe what's happening? We're down so far again this morning, even after the president tried to reassure the nation last night.
Hogan: You know, I'm not sure if the president really reassured. I think he actually woke people up to the severity of issues. This is the first time I think the president's really taking this seriously. In the past, he's brushed this off and said things will get better and the weather's going to warm up, and now he's taking drastic measures like shutting off travel to and from Europe. And you combine that with the NBA canceling games and Tom Hanks, someone that we all know and love, announcing that he and his wife contracted this disease, and it starts to become real.
What's really changing here, I think, and will continue to be eye-poppingly surprising is the new numbers of cases. So whereas China and Italy's new cases seem to have some flatlines, in the U.S. we're going to start to see these new cases explode, and that's only because we're just now getting people tested.
Mathieu: Interest rates have been a big part of this. The credit market, Art, has been deeply concerning as we see this flight to quality into the 10 year treasury that's pulling interest rates to record lows. How does that play into all of this?
Hogan: So that becomes a bit of a self-fulfilling prophecy. The more money that exits the equity markets, the more people sell stocks, the more they tend to hide in places like gold, treasuries, utilities and all of the things we consider to be defensive or harbors of safety. And while that's happening, you've got a yield on the U.S. 10 year that's hit an all time low as of last week. The bad news about that is it tends to send a message to investors that we're probably heading into a severe recession. I don't know that that's necessarily the case; we certainly could have a recession this year in the first two quarters and have a bit of a snapback as COVID-19 runs its course. But I think that the real message about the U.S. 10 year is that everybody's hiding in there. So what I'd be cautious of is piling into that safety trade because that can unwind very quickly.
Mathieu: Yeah, you'll be pretty late to that party. Lastly, Art, I don't mean to be too cute here in a morning that's got a lot of tough news, but are guys like you writing shopping lists right now for when you decide the market's finally hit a bottom?
Hogan: I've got to tell you, we've had so many investors that have actually asked for that exercise to be done for them. To say, 'here are the things that I I think are going to bounce back the most and here are the names of companies that are really going to do well, if not for this market being down.' That list includes a lot of those household names that have just been beaten up over the last couple of weeks here. So, you want to keep your pencils sharp. But I think for investors listening right now, the most important thing to do is not panic [and] stick to your plan. We've had eleven global health scares over the last 20 years. Six months after each of them, the markets have been higher. We're in the middle phases of this and this is when it gets the most scary. But this, too, shall pass.