The Dow Jones dove more than 1,500 points on Wednesday, erasing Tuesday’s massive rally.
As frustrated stock market bulls impatiently pine for Donald Trump’s stimulus package, the WHO rocked a jittery Wall Street by declaring the coronavirus a global pandemic.
Yet it was Boeing stock’s devastating 15% crash that did the most damage to the Dow Jones index.
All three major U.S. stock market indices tumbled at least 5% on Wednesday, but the Dow Jones Industrial Average (DJIA) was comfortably the weakest.
In the commodity sector, the price of oil slipped 4% after U.S. crude inventories surged by seven million barrels.
The gold price failed to capitalize on the pullback in equities, dipping 1.3%.
The World Health Organization has finally seen enough to justify declaring the coronavirus outbreak a global pandemic.
While the WHO had previously been reluctant to give this label to the health crisis, the spread of COVID-19 had left it with no choice but to capitulate to pressure.
Stocks reacted poorly to the announcement, despite the fact that many corporations had already implemented pandemic-level protocols ranging from canceling international travel to sending workers home.
Further hitting the broader stock market is the Trump administration’s bold promise of a stimulus package that has yet to materialize. At the center of these hopes is a payroll tax cut, as well as a delay to April’s nationwide filing deadline for income tax returns.
Dow bulls are disappointed that the president has failed to deliver on his promise, but there are bigger problems afoot.
Tax cuts deliver a slow trickle rather than instant liquidity. For the average American, this could potentially mean just $500 per year in extra funds.
And they may end up saving that extra cash anyway – especially if quarantines become as widespread in the U.S. as in South Korea, China, Iran, and Italy.
Economist James Knightley raises another thorny issue: There isn’t room in the United States budget to cut taxes given how the deficit has already exploded.
There is the issue that the payroll tax is there to fund the social security program, which is obviously under strain. It would therefore put more pressure on general government borrowing, which has already ballooned to 5% of GDP per year despite the US economy having experienced the longest economic boom on record. Instead, targeted financial support is likely get more bang for its buck.
It was an ugly day for the Dow 30, and it was made considerably worse by a huge 17.5% collapse in the value of Boeing stock.
Long the most heavily weighted stock in the Dow Jones, Boeing has been fragile for some time. The coronavirus has brutally exposed these frailties, and the century-old aerospace company is currently worth less than Tesla.
The 737 MAX disasters have been the main headwind for BA, but the economic fundamentals of the business have suffered too. Boeing is taking on $13 billion in new financing, and its sacred order book has seen a rapid increase in cancellations.
As if all this wasn’t bad enough, several Boeing employees contracted the coronavirus. BA stock was already vulnerable to the dire situation for global airlines. And as a manufacturing company, blows to its workforce exert a sizable on its bottom line. The company announced a hiring freeze today, further spooking investors.
Elsewhere in the Dow 30, Apple stock was relatively solid, losing just 3.9%.
Disney slid 7.3% because its parks are expected to take a significant revenue hit from coronavirus.
The best-performing stock in the DJIA was UnitedHealth Group, which dipped 1.2%. Investors may be relieved that Joe Biden’s impressive “Super Tuesday II” all but ensured he would win the Democratic nomination over Bernie Sanders.