The Dow Jones Industrial Average endured a staggering 775-point drop, swayed by rising coronavirus fear and warnings from scientists.
The Dow Jones Industrial Average (DJIA) suffered a second straight agonizing drop on Friday, swayed by rising coronavirus fears, a massive $23 billion in outflows from the stock market, and dissatisfaction with the Fed’s emergency interest rate cut.
Investors remain deeply concerned with the government’s handling of the coronavirus outbreak in the U.S., and Yale professor Howard Forman warns the country is in a crisis.
Throughout the past week, scientists have warned the U.S. government that the capacity of coronavirus testing of the nation significantly falls behind other heavily-affected regions in the likes of South Korea and Japan.
Forman said that there could be 100,000 individuals infected with coronavirus in the U.S., primarily due to the lack of large-scale testing of the virus.
He was quoted as stating:
It is well within the realm of possibility that there are 100,000 people infected with this right now in the United States…It wouldn’t surprise me if we were to learn that most major hospitals have coronavirus patients in them right now.
As a response to the effect of the coronavirus epidemic on the global financial market and the Dow Jones, the Federal Reserve issued an emergency 50-basis-point rate cut.
Despite the decline in the benchmark interest rate, the Dow Jones has struggled to regain its momentum. As of 9:47 am ET, the index had plunged 771.36 points or 2.95% to 25,349.92. That marks its lowest point since May 2019.
Gold has started to rally as Dow Jones slumped, and the yellow metal rose another 0.9% to $1,682 today. The yield on the 10-year Treasury fell even further to sub-0.7%, as the outflow of funds from the stock market hit $23 billion.
The sizable pullback of the Dow Jones comes after Secretary of Health and Human Services Alex Azar reassured the expansion of coronavirus testing capacity.
According to Azar, the Centers for Disease Control and Prevention (CDC) along with a private company called IDT will be able to run 475,000 tests, and will be able to test a million people by the following week.
The fear towards coronavirus stems from the warning of analysts who believe the vamp up of testing capacity came too late. Coronavirus cases rose to 228 in the U.S., merely less than two weeks since the CDC warned of possible community spread.
Central banks do not intend to hold back in using every leftover stimulus in their inventory to stop the global economic slowdown.
Eurogroup chairman Mario Centeno said last week that Europe’s finance minister will spare no efforts to support growth in the financial market.
Yet, after a minor recovery, the Dow Jones has re-entered a steep downtrend and is at risk of entering a correctional phase.
In technical terms, a market or an asset is considered to be in a bear trend if it drops by more than 20% from its recent high.
The Dow Jones fell around 775 points at Friday’s opening bell, dropping the index to roughly 25,350. Another 7.5% drop from today’s open would mark the start of an actual bear market for the Dow.
Japanese bank Nomura hinted that the effect of coronavirus on the global economy is different from previous downturns. It essentially suggested that the same stimuli which worked before may not be effective this time around.
This article was edited by Samburaj Das.
Last modified: March 6, 2020 4:20 PM UTC