Coronavirus has damaged the stock market and the bears are hungry

A word of caution after a violent week on Wall Street: Stocks tend to rally hard during bear markets like we are in currently.

So proceed with both eyes open even if it appears a bottom has formed, experts say.

“I think too much damage has been done [to the market]. I think rallies for now should be viewed as potential selling opportunities, unless the government comes out with something so inspiring that it really changes that dynamic,” Sevens Report Research founder Tom Essaye said on Yahoo Finance’s The First Trade.

Essaye couldn’t have put it any better.

The Dow Jones Industrial Average exploded 1,110 points in pre-market trading Friday — then gave back half of those gains by 10:00 a.m. ET — on optimism regarding a U.S. fiscal stimulus plan to combat the aftershock of the coronavirus. Further firming up investor sentiment was fresh stimulus action from the European Central Bank on Thursday and from the German government Friday.

But to Essaye’s point, this is a damaged market staring the barrel of months of brutal economic data and profit warnings from Corporate America. Just consider how damaged in fact the market is at this juncture.

A board above the trading floor of the New York Stock Exchange shows the closing Dow Jones Industrial Average number, Thursday, March 12, 2020. The stock market had its biggest drop since the Black Monday crash of 1987 as fears of economic fallout from the coronavirus crisis deepened. The Dow industrials plunged more than 2,300 points, or 10%. The vast majority of people recover from the new coronavirus. According to the World Health Organization, most people recover in about two to six weeks, depending on the severity of the illness. (AP Photo/Richard Drew)

The Dow has plunged more than 4,000 points this week. Both the Dow and S&P 500 are in bear markets, pressured in the last five sessions by the likes of Disney shutting domestic parks and Gap warning of a $100 million first quarter sales hit from coronavirus. The coronavirus-rolling financial crisis has rolled right into corporate boardrooms.

The S&P 500 has seen daily average daily swings of 5.7% in the past five sessions, according to Bloomberg data. The CBOE Volatility Index — aka Wall Street’s fear gauge — spiked to a record this week. There hasn’t been two back-to-back up days for the S&P 500 in a month.

Meanwhile, most key international equity indices are in a bear market. And to top it all off, coronavirus infection cases in the U.S. and Europe remain on the rise.

Says Essaye, “We have got to remember the economic fallout of this is just starting. Jobless claims last week were incredibly good. I doubt that will happen next week. We’re at the beginning of the economic fallout of this. Our main hope is that it is short. If this is wrapped up by April or May, this economy can recover relatively quickly. If it goes beyond that we have got a bigger problem.”

Looking for a positive amidst the carnage? Essaye is bullish on Apple stock because of its strong brand and cash flow.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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