- The Dow Jones fell on Friday as Asian nations began to prepare for a second wave of the coronavirus outbreak.
- Europe’s major economies are in “free fall,” placing significant pressure on the European stock market.
- The Dow risks a second leg down if the number of new coronavirus cases does not subside.
The Dow Jones Industrial Average (DJIA) recovery fizzled on Friday, as fears of a second wave of the coronavirus outbreak intensified in Asia.
Even Singapore, which contained the spread of COVID-19 remarkably well, is quietly entering a “pseudo-lockdown.”
The uncertainty prevented the Dow from extending its April 2 recovery. Instead, the DJIA opened the Friday session nervously, bouncing between slight gains and losses.
As of 9:43 am ET, the Dow had gained 5.65 points or 0.03% to trade at 21,419.09.
The S&P 500 and Nasdaq performed somewhat better, rising 0.34% and 0.33%, respectively.
Second wave of coronavirus threatens the Dow Jones
Since March 23, the Dow Jones had enjoyed a slight recovery courtesy of two major factors: the $2 trillion stimulus package and the unified approach of central banks across Europe and the U.S. to provide relief.
The main source of fear investors in the stock market feel, however, has not been relieved. The U.S. is en route to surpass 250,000 confirmed coronavirus cases in the next 24 hours, with Europe at risk of seeing its worst recession in history.
Holger Zschaepitz, market researcher at Welt, said that with record decline in activity, Europe’s economy is plunging at a rate that was not seen before.
The researcher wrote:
Europe’s economy’s in free fall due to Coronacrisis. PMI’s all registered record declines in activity, w/Italy and Spain experiencing the sharpest reductions. Pointing to massive recessions in the countries.
The skepticism towards the recent performance of the Dow Jones grows when strategists see negative numbers coming from Europe, China, and other major Asian economies.
When Europe is inches away from falling deep into recession, key sectors in the U.S. and Asia including manufacturing, car making, and agriculture cannot meet the expectations of investors in the financial market.
With vaccines for coronavirus still 12 to 18 months out as said by Swiss pharma giants and Dr. Anthony Fauci of the U.S. government, the Dow Jones remains highly vulnerable to a severe correction.
The global coronavirus pandemic is growing at such a rapid pace that countries like Singapore, Japan, and South Korea, which are said to have seen the peak of the virus, are publicly expressing concerns for a second wave of the virus outbreak.
According to Vice Asia chief editor Natashya Gutierrez, Singaporean Prime Minister Lee Hsien Loong said:
By working together we’ve kept the outbreak under control. But looking at the trend I am worried… unless we take further steps. We will close most workplaces except for essential services. Markets, F&Bs, clinics, hospitals, transport, banking, utilities remain open. Most others must close.
When countries with a substantially low number of coronavirus cases like Singapore are feeling the need to sacrifice short-term economic growth to more tightly contain the virus outbreak, it shows that the U.S. and Europe are still far from flattening the curve of coronavirus.
A market downturn caused by a virus can only be solved by subsiding cases
Aggressive fiscal policies and stimulus boosts can only do so much in the short-term to alleviate pressure from the Dow Jones and European stock markets.
Despite having arguably the biggest stimulus package approved to date, the Dow Jones has still fallen by an additional 5% since March 26.
Last modified: September 23, 2020 1:48 PM