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Investors Practice “Social Distancing” to Financial Assets

Over the past month, equity markets and financial assets broadly, have been attempting to price in the dual shock of a pandemic and the sudden collapse in oil prices, the latter a huge negative for the energy sector. The roughly 30% drop in the U.S. equities is pricing in >100% probability of a recession.

Stocks have responded to the growing liquidity stresses across financial markets. The 100% basis point Federal Reserve cut Sunday has been ignored by investors, arguably worsened fragile sentiment, and likely contributed to the further selling we saw Monday. At one point, the VIX, or “fear index” posted an all-time closing high, around 83, which is higher even that during the Great Financial Crisis of 2008-09.

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