A plunge in oil prices and the fast-spreading coronavirus set off a chain reaction in financial markets, on Monday. It is a self-perpetuating downward cycle from coronavirus that can cause serious harm to the global economy.
Last month started the unease about a potential economic slowdown in China. Then it has evolved into borderline panic. On Monday, the S&P 500 crashed nearly 8 percent. The mayhem threatened to roil the underlying global financial system and the abilities of companies small and large to survive a potential economic monsoon. It is a downward spiral that is fed and intensified with these destructive forces.
After an unexpected fight between Saudi Arabia and Russia, the odds of such a storm grew. Saudi Arabia announced it would quickly ramp up production after failing to reach an agreement about how much oil to produce and sell on international markets.
As investors fret about a possible recession, oil prices had been falling. They plummeted over 20 percent on Monday. Since the first Persian Gulf War, it is the sharpest decline.
United States President Donald Trump is facing one of the worst crises since he was sworn in. He also played down the virus threat. Nevertheless, on Tuesday, he said that he would talk with Republican congressional leaders about a payroll tax cut. President Trump will also speak about the legislation for protecting hourly wage earners who might have to miss work because of the virus. Nevertheless, he did not provide any details.
Over the past few weeks, the S&P 500 has tumbled 19 percent. On Monday, it was at its worst one-day decline in over a decade.
In stock market wealth, the free fall has vaporized more than $5 trillion.
In the United States, on Monday morning, less than 10 minutes after markets opened, the sell-off became so steep that automatic circuit breakers kicked in and halted trading. Since the current circuit breakers were set in 2013, it was the first time that has happened. On the 11th anniversary of the start of the current bull market, the S&P’s 7.6 percent drop came one of the largest ever. A 20 percent drop from the high point will signal what is known as a bear market. A bear market is a marker the S&P 500 has only narrowly avoided for now.
The public health crisis is currently threatening to turn into a financial one. That, in turn, might amplify the virus’s economic fallout.
Dan Krieter is an analyst at BMO Capital Markets. He said that there is panic. Krieter added that they are heading into what looks to be a global recession, including the United States.
Early on Tuesday, in Asia, markets were mixed. It is an apparent sign that the investors tried to regain their footing. Moreover, futures markets were predicting Europe, and Wall Street will open higher.
Though they remained well below levels from last week, oil prices also rose about 6 percent.
The virus disrupts manufacturing supply chains as well as consumer spending, travel will fall, and businesses would falter, and stock prices will have plummeted. Let’s hope that the situation will become better soon and coronavirus will stop.