Posted in: Market News
Published:
April 1, 2020 10:55 AM UTC

Dow Collapses but Hope Swells in COVID-19 Drug Breakthrough

There is light at the end of the tunnel as researchers in China and the UK make breakthroughs in possible coronavirus treatments.
  • The Dow Jones Industrial Average (DJIA) tumbled for a second straight day on Wednesday.
  • President Trump dashed hopes of a quick recovery and extended U.S. lockdown measures.
  • But hope comes in the form of a potential breakthrough Covid-19 treatments in China and the UK.

Last week’s promising stock market rebound appears to have vanished. The Dow Jones Industrial Average (DJIA) fell 3%, pointing to another miserable day on Wall Street.

The move down was triggered by President Trump’s sobering admission that there will be no quick recovery. But there is a glimmer of hope on the horizon as Chinese and UK researchers edge closer to a coronavirus treatment. Ahead of new trials in Britain, Dr Andrew Ustianowsik said:

In my heart I’m hopeful… I think this drug is promising in the laboratory, and we’re hopeful it will be as promising in humans.

Many analysts have said the stock market is unlikely to fully recover until there’s light at the end of the coronavirus tunnel. An effective treatment is a promising first step.

Dow collapses 3%

The Dow Jones sunk lower at Wednesday’s opening bell. By 9:56 am ET, the index had lost 667.18 points or 3.04% to slide to 21,249.98.

The Dow Jones suffered another steep decline on Wednesday. | Source: Yahoo Finance

The S&P 500 and Nasdaq were down 3.2% and 2.79%, respectively.

Potential coronavirus treatments, explained

The Chinese breakthrough is an antibody treatment. Scientists analyzed the blood of infected patients and discovered a number of antibodies they say are “extremely effective” at blocking the virus from latching to cells. Zhang Linqi at Tsinghua University, Beijing explains how it works:

The importance of antibodies has been proven in the world of medicine for decades now … They can be used to treat cancer, autoimmune diseases and infectious diseases.

By identifying and combining the most powerful antibodies, they could create a treatment for Covid-19 patients. It may even act as a preventative drug for those who haven’t had it yet.

In the UK, the government has fast-tracked trials of an anti-viral drug called remdesivir. It will soon be tested on patients with both mild and severe forms of the novel coronavirus. Dr Ustianowsik, who is overseeing the trials, said:

What we really need, and what we really want, is a specific treatment against Coronavirus that delays the infection, treats the infection, and hopefully makes people better.

Dow Jones adjusts to Trump’s coronavirus reality

The Dow mounted a promising recovery last week when Trump promised to re-open the economy by Easter. But he delivered a sombre U-turn last night:

I want every American to be prepared for the hard days that lie ahead. We’re going through a very tough few weeks … This is going to be a very painful, very very painful two weeks.

The president extended social distancing measures again as health experts predicted as many as 220,000 U.S. deaths in the coming months. Goldman Sachs delivered another punch to the markets with a devastating prediction of its own: a 32% decline in GDP.

More stock market pain to come?

Trump’s new reality means longer lockdowns, more pain for businesses and more unemployment. According to Rupert Thompson, chief investment officer at Kingswood, that will lead to a prolonged period of economic damage. This was never going to be a quick recovery, he says.

The fact that markets are retreating again isn’t a big surprise. And if you go back to post-Lehman days and the Global Financial crisis, you had similar rallies, big rallies, 15-20%, a couple of them followed by renewed declines. And actually following those rallies you had the markets actually hitting new lows. So the fact that markets are retreating again I don’t think is a huge surprise.

The Dow Jones and the S&P 500 will enjoy the occasional rally from government and central bank stimulus. But a full recovery is unlikely until the coronavirus pandemic subsides. That can only come from new treatments or a strong bend in the curve of new infections.

This article was edited by Samburaj Das.

Last modified: April 1, 2020 1:57 PM UTC

Ben Brown @_ben_brown

Ben is a journalist with a decade of experience covering financial markets. Based in London, UK, his writing has appeared in The Huffington Post and he was Chief Editor at Block Explorer, the world's longest-running source of Blockchain data. Reach him at benjamin-brown.uk or on Twitter at _Ben_Brown. Email ben @ benjamin-brown.uk.

Leave a Comment