Fight Back! News

News and Views from the People's Struggle

Stocks plunge on COVID-19 fears

By Masao Suzuki

San José, CA – U.S. stocks plunged sharply right after the opening bell and ended more than 7% lower as the Dow Jones Industrial Average lost more than 2000 points, March 9. So swift was the fall that within minutes so-called circuit breakers developed after the 1987 stock market crash kicked in, halting trading for 15 minutes. Stocks tried to bounce back but ended the day lower.

Fear over the COVID-19 epidemic growing in the United States and its economic impact hit U.S. stocks hard as well as stocks around the world. Asian stock markets opened lower, with Japanese stocks down 6.8%. The rout continued in Europe, with the German stock market down almost 8%, and then on to the United States.

Investors fled to the safety of U.S. government bonds. As bond prices rose on the spike in buying, interest rates on the ten-year U.S. Treasury Bond fell to another record low of just one-half of one percent. These record low interest rates show that many on Wall Street are expecting a recession, if not years of economic stagnation.

Another factor pulling the stock market down was the price war that erupted between Saudi Arabia and Russia over the weekend. The Saudis were trying to get Russia to join OPEC in cutting production and boosting prices. The Russians refused and the Saudis promised to increase production. This drove oil prices down 25% in one day, to a low of just over $30 a barrel. This in turn put pressure on U.S. corporate bonds, as U.S. oil drillers have been big borrowers and some of them may default (not pay in full) their debt. This credit market uncertainty led the U.S. Federal Reserve to increase injections of cash into the overnight loan market to $150 billion on Monday.

With more than 700 known COVID-19 infections in the United States, more and more industries are getting hit. Travel-related industries are suffering from cancellations with the hardest hit being cruise lines, airlines, hotels and restaurants.

There are also growing fears that the United States will soon look like Italy, which now has over 9000 infections and is the second largest outbreak after China. Just ten days ago Italy had about the same number of infections as the United States does today. Both the United States and Italy have capitalist economies and both countries responded to the COVID-19 outbreak in the same way: by restricting travel from China. However, both the U.S. and Italy gained a false sense of security, thinking that travel restrictions would keep out the virus, and failed to prepare for an outbreak. In comparison, socialist China has reduced new infections to under 50 for the last two days in a row and is now starting to revive their economy.

#SanJoséCA #Capitalism #stockMarket #COVID19