The stock market crash of the past two weeks looks like an over-reaction to COVID-19.<\/p>\n
Is COVID-19 really the reason for the crash? I can’t find any other news that would explain the timing and which stocks were hit hardest.<\/p>\n
Here’s a sample of some of the harder hit stocks, all travel-related (Friday’s close compared to the highest close in February):<\/p>\n
It is, of course, possible that the market was in a mild bubble in early February, and the virus merely triggered a return to sanity. There were enough high-priced stocks that I’ll guess that’s explains a little of what happened. Hertz and Avis are maybe high-risk stocks due to the risks associated with the upcoming transition to robocars. But the others that I listed did not at all fit my stereotype of overpriced stocks.<\/p>\n
And the stocks that I had been thinking were overpriced, in industries that don’t look to be especially hurt by the virus, declined roughly in line with the market.<\/p>\n
Outside of travel-related stocks, it mostly looks like a general shift in preferences to more cash, and away from stock. I.e. a general increase in risk aversion.<\/p>\n
The gold market is confused as to which direction a pandemic should move it. I agree. I’m confused as to how gold should react.<\/p>\n
What scenario could explain the decline? Maybe a two month shutdown of 90+% of U.S. air travel? A multi-year reduction in travel of 10%? It would take something like that for the market reaction to make much sense. Yet I’d bet at roughly 10:1 odds against any one of those scenarios happening.<\/p>\n
Metaculus is currently predicting 195k COVID-19 deaths<\/a> this year.<\/p>\n Metaculus forecast trends ought to look a good deal like random walks, yet the charts I see there look more like exponential growth.<\/p>\n