March 13, 2020

Stocks rebounded on Friday, ending a week of wide swings that drove major U.S. stock indexes into bear-market territory. Both the Dow Jones Industrial Average (DJIA) and the S&P 500® index rose more than 9% in Friday’s session, leaping after the White House announced new measures aimed at containing the coronavirus.

At Friday’s close, the S&P 500 was down 19.54% from its peak in February, while the DJIA was down 21.54% from its February peak.

Overall, it was a rough week for the stock markets.

“The number of COVID-19 infections and deaths has continued to rise, prompting increasingly drastic containment measures,” says Schwab Chief Investment Strategist Liz Ann Sonders. “Signs that companies in the hardest-hit industries, including energy- and travel-related companies, were drawing down credit lines to battle the effects of the virus on their operations added to the anxiety.”

Recession risk is rising

A recent sharp fall in oil prices will have mixed effects, according to Schwab Chief Global Investment Strategist Jeffrey Kleintop.

“Importers such as China, Japan and India will be beneficiaries, but countries such as Canada and Mexico will be hurt,” Jeffrey says. “Earnings estimates for energy companies and the global averages—as well as jobs—will likely need to be cut, despite the benefit at the pump to consumers.”

Altogether, recession risk is on the rise, Jeffrey says. “It’s possible we are entering a global recession, but it’s too early to tell the magnitude,” he says.

Much will depend on the severity of new-case growth around the world, Jeffrey says. “In past epidemics, stocks didn’t bottom until global new-case growth stabilized,” he says. “While new cases outside China continue to rise, Chinese stocks have outperformed as domestic new-case coronavirus growth seems to have peaked.”