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Dow Jones Drop Is Just the Beginning of Coronavirus Damage

The Dow Jones fell to its worst point in the past two years, putting it at its third worst drop point in history, as coronavirus spreads and elicits panic among investors.

Posted: 25th February 2020 by
Finance Monthly
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This morning's news comes as no surprise given the state of play, but as the Dow Jones hits its third-worst point in history, investors are waking up to the prospect that this may be just the beginning of what’s to come.

Some economists are warning that the pandemic could push the Bank of Canada and the US Federal Reserve to consider cutting interest rates sooner rather than later; a clear sign of more to come. Benjamin Tal, deputy chief economist at CIBC Capital Markets, told The Financial Post: “It is reasonable to assume that coronavirus is going to last longer given the infection rate is higher than SARS and is still climbing. That itself, might convince the Bank of Canada and even the US Fed to cut interest rates. I wouldn’t be surprised.”

“This is just the beginning of coronavirus, and there is a consensus starting to be generated that maybe, it will last longer than expected.”

In terms of numbers, the Dow Jones Industrial Average dropped 1,031 points, or 3.56% on Monday, while the S&P 500 plunged 3.3%, the biggest drop since last August. Global demand for oil has stalled, leaving the price to fall as much as 4% over the weekend. The price of gold on the other hand, went up, as investors attempt to put their money where it’s safe.

According to Frances Donald, chief economist at Manulife Investment Management: “The virus spread comes at a time when companies are already facing significant inventory restocking and a stalling in global manufacturing following the application of tariffs and overall trade tension…Coronavirus is adding salt to the wound.”

The good news is that based on past research from the Bespoke Investment Group, over the past 11 years, declines of more than 2% for the S&P 500 have resulted in healthy rebounds, particularly when the largest drop happens on a Monday. However, both analysts and investors are highly sceptical moving forward, and the next few weeks should give some indication of how stocks will play out in the wake of coronavirus’ furore.

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