Financial markets stumble
Coronavirus and oil war to blame
Wall Street melted down on Monday as the Dow Jones plummeted more than 2,000 points — a 7.8% nosedive caused by mounting coronavirus fears and falling oil prices, economists tell the Herald.
Monday’s collapse was the Dow’s worst day since the financial crisis of 2008. The
Dow tumbled 2,014 points.
“Coronavirus, coronavirus and coronavirus,” UMass Amherst economics professor David Kotz said about the major drop.
“The global economy is dependent on the movement of people and goods, and this just seems like a disaster of major proportions,” he said, noting the quarantines and travel restrictions implemented by countries around the world.
There has been a “big shock effect” with coronavirus, roiling the markets, said Gary Hufbauer of the Washington, D.C.-based Peterson Institute for International Economics.
“To me, the analogy is terrorism,” he said. “Terrorism is dreadful, but it doesn’t kill many people compared to gun violence or auto accidents.
“With coronavirus, the mortality numbers are very low for western countries, but it’s the fear of the upsurge in case numbers and deaths, driving the stock market down now,” Hufbauer said. “It has a big shock effect.”
Also, an oil war between Saudi Arabia and Russia sent shock waves through energy markets on Monday.
The single-day plunge in U.S. crude prices surpassed declines that occurred shortly after the Sept. 11 attacks. The price of U.S. crude fell as much as 34% to $27.34 a barrel.
The decline followed Russia’s refusal last week to join the OPEC oil cartel in proposed production cuts aimed at supporting prices.
Thwarted in its search for cuts, Saudi Arabia, the leading OPEC member, sharply changed course over the weekend by cutting prices and signaling it will ramp up production.
“This game of chicken between Saudi Arabia and Russia will resolve itself. I’m a little bit less concerned about that,” said Professor Nada Sanders of Northeastern University’s D’AmoreMcKim School of Business. “But the virus is something we don’t have any control over, and will unfortunately be a longer-term issue.”
Global cooperation is key to deal with the economic uncertainty and worldwide epidemic, Kotz said.
“Major country leaders need to sit down together, and agree on common strategies to contain this,” he said. “They should combine research for a vaccine, and work together to develop a vaccine as soon as possible.”
Hufbauer said a slash in fed rates can help, along with a big stimulus package. Such steps from the U.S. government, he said, would “boost peoples’ confidence.”