11, 2001, terrorist attacks were a calamitous example, a so-called exogenous shock for markets, having originated outside the financial system itself. In financial circles, there’s a term for such events: a black swan. “This you can’t even put a model on, because it’s not really something that we’ve seen before,” said Michael Feroli, the chief U.S.

The most sophisticated financial models and the fastest-moving trading algorithms are flying blind. For the first time, the interest rates on 10-year Treasury note shriveled this week to less than 1 percent, falling on Friday to a record low of 0.71 percent.Ī sudden global disease outbreak isn’t the kind of risk that many market players were trained to react to. The safest assets out there - bonds issued by the U.S. As investors flee from risk, gold prices have soared. With the global economy now poised to shrink, demand for oil is declining, causing the price of crude to crater. In New York, Bank of America and JPMorgan Chase dispatched small parts of their trading desks to the suburbs so they would have backup crews to keep business running in an emergency. In Silicon Valley, Apple and Twitter told people to work from home. Their immediate task is to figure out how to keep operating while making sure their employees are safe. Many companies are essentially frozen in place, unable to predict how the coronavirus might affect their businesses. The financial mayhem extends beyond the stock market. “That’s been really hard for people to digest.” “There’s no playbook for this,” said Derek Devens, a portfolio manager at the fund company Neuberger Berman. (A similar last-minute surge the previous Friday made an awful week a little less bad.) For all the heartburn-inducing turmoil, the S&P ended this week essentially flat.īehind the turbulence are confusion and anxiety, and a sense that the modern world is in an unprecedented situation. On Friday afternoon, the S&P was poised to lose more than 2 percent, before the index pared its losses amid a blizzard of buying in the moments before the closing bell. In the past two weeks, even decent days have been tinted with a scary aura. The plunge has obliterated roughly $3 trillion in wealth. The S&P 500 index has dropped 12 percent since Feb. The spiraling fears have caused financial carnage. Uncertainty about how long all this uncertainty will last. Uncertainty about the ability of governments to contain the disease and the power of central banks to counter its economic fallout. Uncertainty about how the global economy will fare as factories, airports, stores, schools, entire cities shut down. Uncertainty about the severity and duration of the coronavirus outbreak, ripping around the world at something like light speed.

There is nothing investors hate more than uncertainty.

King of Carnage by R.E. Bond