Markets are "very oversold," with a lot of "forced selling" going on, says a Fidelity analyst, who compared the recent volatility to extreme downturns in the past.
"We're certainly very oversold," said Jurrien Timmer, director of global macro at Fidelity Investments.
"We're at the levels of '08, of '87 crash, 1970, even 1929, 1930," he said, referring to the 2008 financial crisis, Black Monday in 1987, and the 1929 Great Depression. "So you can count almost on one hand the times that we've been this oversold."
As the coronavirus pandemic spread rapidly through the U.S., Europe and elsewhere, investors have fled markets. Even assets traditionally considered safe havens like gold have not been spared.
Efforts to contain the outbreak have severely impacted companies, as travel comes to a near standstill, consumers stop activities, and businesses shut their doors. The shutdowns have also sparked predictions of massive job losses.
Many major investors are selling every asset class — from stocks to bonds to gold — in order to raise cash.
As of its Thursday close, the Dow Jones Industrial Average has fallen 13.36% so far this week, putting it on track for its largest weekly percentage loss since the financial crisis. The 30-stock index remains 32% below its all-time high level from February, while the S&P 500 is 29% below its high.
Earlier this week, government bond yields cascaded to record lows amid reports of liquidity issues in the market and fears of a global recession.
"It's the fastest, sharpest decline we've ever seen. It's been contagious across all asset classes — bonds, credit, commodities, you name it," Timmer told CNBC on Friday.
"Clearly there is a lot of forced selling going on amongst the leveraged set, as I call them ... A lot of positions are being unwound," Timmer added. Essentially, traders need to raise cash to pay for the over-exposed calls that have generated losses.
Volatility has also hit Asia markets in the past two weeks, with stock exchanges halting trade as stocks crashed as much as 8%.
In a note on Thursday, Morgan Stanley said the volatility has been "extreme by any historical measure." The S&P 500, for instance, had seven consecutive days with daily moves larger than 4%, beating even the record in 1929, the investment bank said.
It said volatility would likely peak before markets bottom out.
"We think that volatility needs to stabilise before the broader market can heal. There is precedent for this; in 2008, 2011, 2015 and 2018, equity volatility peaked well ahead of the ultimate low," Morgan Stanley wrote. "After a shock, markets first become comfortable with the level of uncertainty (volatility), then with the level of price."
— CNBC's Tanvir Gill, Jeff Cox contributed to this report.