SALT LAKE CITY — The coronavirus outbreak and an oil price war rattled the stock and oil markets Monday, causing investors to scramble to less risky assets and prompting financial advisers to warn that the worst may be yet to come.
Trading was temporarily suspended Monday, prompted by a 7% drop in both the S&P 500 and Dow Jones Industrial Average — market benchmarks — just minutes into the trading day, The Wall Street Journal reported.
The stopgap assisted in some early recovery, as the Dow and S&P 500 settled around a 5.5% drop in early Monday trading, before beginning another free fall of 7.8% — its steepest drop since the financial crisis of 2008.
The opening decline in U.S. trading came in the wake of a greater than 6% slide to European stocks, according to The Associated Press. The Nikkei 225 fell more than 5% on Monday.
The instability is attributed to worldwide fears of the coronavirus and what could come if the virus grows into a global pandemic. Investors are still weighing the unforeseen consequences of the virus and how it will affect the economies around the world, and are deciding that to sell may be the safest action, The Associated Press reported.
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“This is going to be treacherous for a while. I would advise most retail investors to stay on the sidelines, not panic. There will be opportunities but they’re not now,”said Mohamed El-Erian, the chief economic adviser for Allianz, a multinational financial services company based in Germany, said Monday.
El-Erian said the U.S. stock market could fall 30% from record highs last month, CNBC reported.
Crude crashes
Global oil markets crashed by 20% on Monday after Saudi Arabia and Russian began a price war over crude, The New York Times reported.
Saudi Arabia’s Aramco told buyers it would cut prices in an attempt to capture portions of Russia’s market share, according to The Wall Street Journal. Saudi officials said they also planned to increase output next month.
President Donald Trump tweeted early Monday that the oil price drop was unrelated to the coronavirus.
Saudi Arabia and Russia are arguing over the price and flow of oil. That, and the Fake News, is the reason for the market drop!
— Donald J. Trump (@realDonaldTrump) March 9, 2020
But the Wall Street Journal and Associated Press traced the drop in oil prices to January when the coronavirus became public knowledge. The AP explained the outbreak reduced travel and transport, sharply reducing demand for fuel. The international Brent benchmark had fallen from $69 at the start of the year to around $50.
Last week,OPEC and nonmember countries met to discuss cutting global production by 1.5% to prevent prices from dropping more, but Russia balked at idea, triggering the price war.
Financial advisers: Getting worse before it gets better
The nation’s top financial advisers are warning clients of a possible recession in the American and global economy.
“The worst for the economy is still to come over the next several months,” said Pimco’s (Pacific Investment Management Co.) chief economic adviser Joachim Fels in a letter to clients, Bloomberg reported.
The financial management company, one of the top performing financial institutions in the nation, estimated there is a 35% chance of recession in the next two years.
J.P. Morgan wrote on its website that the coronavirus “outbreak has weighed on global financial markets and is expected to heavily impact business and travel.” The firm’s chief economist Bruce Kasman forecasted a stall in the global economy for the first quarter of the year, “representing the first time global growth has stalled outside of a recession.”
Coronavirus, fear continue to spread
More than 3,600 new coronavirus cases were confirmed on Sunday, bring the total to more than 105,500 globally, the World Health Organization reported over the weekend. Thirteen new countries and territories — 101 total — reported cases.
The disease resulting form the virus, COVID-19, has now killed more than 3,500 people.
The spreading coronavirus and falling oil prices have created the expectation of economic turmoil, the Journal reported. The Cboe Volatility Index, or VIX, jumped to about 62 in trading Monday,its highest intraday level since 2008during the financial crisis, according to Dow Jones market data.
“The volatility market is telling us that investors are panicked and disoriented,” Matt Rowe, chief investment officer at Headwaters Volatility, told the Journal. ”Investors are definitely pricing in a protracted period of high realized volatility.”
In a separate article, the Journal said investors are seeking safety in the least risky assets they can find, which sent bond yields plunging to historic lows. “The 30-year bond yield hit a low of 0.712%, down from 1.216%, implying investors are scared enough about the long-term future to accept a minuscule amount of interest for three decades.”
One asset that has been climbing in value, is gold, which reached a ceiling of $1,700 Monday before settling at around $1,670. This marks its highest price since December 2018, according to CNBC.
