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Dow Recoils as IMF Warns Recession Could Eclipse 2008 Crash

Francois Aure
Last Updated September 23, 2020 1:46 PM
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  • The Dow Jones snapped a three-day winning streak on Friday.
  • Coronavirus headwinds in Europe paint a worrying picture for the United States.
  • The outlook for the Dow darkened after the IMF indicated that the global economy is already in a recession as bad, if not worse, than the financial crisis.

A flurry of bearish news took the wind out of the Dow Jones on Friday, and the stock market’s epic rally ended just as suddenly as it began.

Friday’s pullback was accompanied by a spate of ugly coronavirus headlines. Italy and Spain recorded their worst daily death totals, U.K. Prime Minister Boris Johnson contracted COVID-19, and U.S. infections spiraled toward 100,000 .

Intensifying the end-of-week gloom, IMF Chair Kristalina Georgieva warned that the global economic downturn could be worse than the Great Recession.

Dow Jones Drops as Historic Stock Market Rally Fades

Dow Jones, Stock Market, Coronavirus, IMF
The Dow Jones fell as the stock market deals with a recession that is already as bad as 2008-2009, according to the IMF. | Source: Yahoo Finance 

All three of the major U.S. stock market indices  came under pressure on Friday:

  • The Dow dropped 915.39 points or 4.06% to 21,636.78.
  • The S&P 500 dipped 3.37% to 2,541.47.
  • The Nasdaq fell 3.79% to 7,502.38.

In the commodity sector, talk of OPEC+ reaching a deal to balance the oil market was squashed by Saudi Arabia , which sent oil prices 4.65% lower to $21.55 per barrel.

The price of gold fell 0.45% to $1,652 despite the twin supports of stock market struggles and a weaker USD.

The University of Michigan consumer sentiment index, a strong indicator for the health of the United States’ services-led economy, tumbled the most since the financial crisis , as concern about the spread of the coronavirus crippled the economic health of the U.S. consumer.

Michigan Consumer Sentiment, Stock Market, Dow Jones, Coronavirus, COVID-19
Source: Twitter 

This is particularly bad news for several large retail stocks in the Dow Jones, including Apple and Nike.

Coronavirus Deaths In Europe Spook Dow Bulls

The global pandemic has officially found a foothold in North America. The U.S. has roughly 98,000 confirmed cases , more than 15,000 ahead of China and 10,000 ahead of Italy.

Across the Atlantic, Spain and Italy recorded their worst-ever days for coronavirus deaths, combining for around 1,600 fatalities. Both nations are seeing a steady increase in the number of infections.

Coronavirus, Dow Jones, Stock Market, COVID-19
Source: Twitter 

While the U.K. is “enjoying” a flatter curve than many of its European counterparts, news that Prime Minister Boris Johnson has tested positive for coronavirus  will only intensify lockdown efforts in the world’s sixth-largest economy.

It is tough to anticipate a sustained rally in the Dow while the U.S. trajectory of COVID-19 bears a close resemblance to these troubled European nations.

IMF Warns Economic Crisis Is as Bad (or Worse) Than 2009

Alongside the plunge in consumer sentiment, the economy received another blow when the IMF compared the “coronavirus recession” to the financial crisis.

IMF Managing Director Kristalina Georgieva sounded at times optimistic, pessimistic, and realistic in a measured speech on Friday morning.

While cautioning that she’s still hopeful the global economy will rebound in 2021, she was forced to admit that the pandemic could produce a downturn that eclipses the Great Recession.

Georgieva said:

We have reassessed the prospect for growth for 2020 and 2021. It is now clear that we have entered a recession – as bad as or worse than in 2009.

We do project recovery in 2021–in fact there may be a sizeable rebound, but only if we succeed with containing the virus – everywhere – and prevent liquidity problems from becoming a solvency issue.

A key concern about a long-lasting impact of the sudden stop of the world economy is the risk of a wave of bankruptcies and layoffs that not only can undermine the recovery but can erode the fabric of our societies.

This pragmatic view articulates the complicated forecasts of many stock market investors who hold out hope that conditions will improve soon – but can’t ignore the glaring downside risks either.

Dow Stocks: Boeing Giveth, Boeing Taketh Away

After powering most of the Dow 30’s rally over the past few days, Boeing closed the week with a 10% drop.

Airlines tumbled because the likelihood of a drawn-out battle with the coronavirus looks increasingly likely. This weighed on Boeing despite optimism about the passage of Congress’ stimulus bill.

Apple was relatively steady as a likely flight to quality continues among institutional investors, losing 4%.

Sliding in tandem with the price of oil, Chevron (-10%) and Exxon Mobil (-5%) both struggled.

Procter & Gamble (+2.6%) and Travelers Companies (+1.3%) were the index’s lonely gainers. McDonald’s shares weathered drastic changes to its menu, including the suspension of its beloved all-day breakfast items , but MCD dropped into the red just before the close.