The Dow Jones crashed more than 2,000 points on Monday as coronavirus fears peaked - despite evidence China may be beating COVID-19.
Not even a stock market-wide trading halt was enough to stop the bleeding.
All three major U.S. stock market indices suffered a devastating start to the week.
In the commodity sector, the oil price endured a historic shock. WTI crude traded down as much as 30% from Friday’s close, before climbing to $31.25 per barrel for a loss of around 24%.
Unfortunately for investors looking for rapid gains in safe-haven gold, XAU/USD was lackluster, rising just 0.3%.
The Japanese yen performed much more strongly. The defensive currency rallied 3% against the dollar.
Treasury yields continue to point to an impending recession; the U.S. 10-year currently yields just 0.5%, while the 30-year offers less than 1%.
As the economic impact of the coronavirus ripples around the globe, the Dow Jones appears trapped in a downward spiral. Negative COVID-19 headlines continue to spook investors, overshadowing positive developments in the process.
Firstly, the good news.
China has claimed that of all its confirmed cases, only 30% have yet to recover. Assuming that’s true, it’s excellent news for Dow bulls buying the dip and hoping for a v-shaped recovery in the global economy.
Unfortunately, many traders on Wall Street are skeptical of Chinese data. That likely explains why the stock market seems to have ignored it.
Hans van Cleef, senior energy economist at ABN AMRO, believes that the economic drag from China’s slowdown will endure. He said:
Although activity in China has partially restarted again, we do see a considerably lower number of flights towards the region. The broader travel and tourism industry also starting to feel the effects.
We expect that the negative impact on the economy – and thus on oil demand – will continue and therefore we have downwardly revised most of our growth forecasts for the first and second quarter of this year.
Bulls also failed to seize on the prospect of crisis-level fiscal stimulus measures from the Trump administration.
The Dow Jones is crying out for a more dynamic health response, not more positive dialogue, and it responded very poorly to reports that Trump was inviting Wall Street executives to the White House.
Monday’s batch of negative coronavirus headlines comes primarily from Europe. Italy has millions of people under quarantine in Northern Italy, and its death rate continues to rise sharply. Investors fear a similar scenario could materialize in North America if a more earnest health response doesn’t take effect soon.
Perhaps the worst news for the Dow Jones came from the World Health Organization (WHO), which said that the recovery period for those infected with COVID-19 is a whopping six weeks.
Even if the virus isn’t alarmingly deadly, this prolonged recovery period makes it particularly burdensome on an economy trying to get back online.
It’s fair to say that, as the trajectory of the outbreak continues, many people in the United States will at some point in time, either this year or next, be exposed to this virus. And there’s a good chance many will become sick.
The Dow 30 saw absolute carnage on Monday, and energy companies Chevron (-13.6%) and Exxon Mobil (-9.8%) were smashed by the slide in crude oil.
As interest rate expectations plunged, Goldman Sachs (-10.9%) and JP Morgan Chase (-13.4%) crashed with bond yields.
Apple dove 6.7%, which actually made it the 15th-best performing stock in the 30-member index. Although it has fallen below $270 share, AAPL still looks like a relative haven given the market turmoil.
The only stock in the entire Dow Jones to rally was domestic play Walmart (+0.1%), but even the budget supermarket spent the day oscillating between gains and losses.
This article was edited by Josiah Wilmoth.