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Fall in stock prices gathers speed

By Masao Suzuki |
February 28, 2020
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San José, CA - The weeklong fall in stock prices gathered speed on Thursday, February 27, as the Dow Jones Industrial Average fell almost 1200 points or 4.4%. The broader S&P 500 and the tech-heavy NASDAQ stock indices also fell by 4.4%. The total decline in stock prices has now topped 10%, putting the markets into a so-called ‘correction.’ For the S&P 500, the time from hitting a record high on February 19 to entering a correction on February 28 was the fastest on record, taking only six trading days.

As stock prices sank, many investors rushed to buy bonds, sending bond prices up. The interest rate on the ten-year U.S. Treasury bond fell to another record low of 1.26%. Bond interest rates again ‘inverted’ with the ten-year bond having lower interest rates than short-term three-month and six-month bonds. This is the opposite of a normal market and is one indicator of a future recession.

The spread of the novel coronavirus (COVID-19) again dominated the news, as more new infections were reported in South Korea than in China. As infections continued to climb in Italy, more European countries began to report new infections. While the rate of new infections is slowing in China and the economy is slowing coming back to life, economic disruptions are continuing to grow in South Korea and the European Union, reaching as far as U.S. businesses.

To make matters worse, at a Wednesday, February 26, evening press conference, President Trump continued to insist that the numbers of coronavirus cases in the United States are going down, that a vaccine was coming soon, and that the U.S. was well-prepared for the new virus. In fact, the numbers are growing, with a new case in northern California unrelated to any foreign travel. A Centers for Disease Control official contradicted Trump, saying that a vaccine was probably 12-14 months away. One of the Trump administration’s top health officials admitted the federal government only had 10% of the protective masks needed.

If U.S. stocks continue to fall on February 28, this will be the worst week for the stock market since the Financial Crisis in 2008.