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Stock market crushed after Trump’s speech

Dow down 10%, largest drop since October 1987 crash
By Masao Suzuki |
March 12, 2020
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San José, CA - U.S. stocks fell almost 10% Thursday, March 12, the day after President Trump called for a travel ban on Europe. This was the largest drop since the stock market crash of October 1987 and put the broader S&P 500 as well as the tech heavy NASDAQ stock market indices in bear market territory as all three major indices are down more than 20%.

Trump did nothing to address the growing economic worries as more and more industries are being affected by COVID-19, now officially a pandemic. In fact, his travel ban only added to economic and social disruption as Americans tried to return and plane tickets soared from hundreds to over a thousand dollars one way. Nor did his speech do anything to support effort to slow the spread of the new coronavirus, by continuing to portray it as a foreign entity that is being brought into the United States.

The day also raised the historical specter of “Black Thursday” on October 24, 1929, when stocks also fell by 10%. The 1929 stock market crash is widely seen as ringing in the Great Depression in the United States.

Stocks began to fall in Asia on Thursday morning after Trump’s speech, bringing the Japanese stock market into bear market territory after falling 4%. The drop was even worse in Europe, where stock markets fell by double digits. U.S. stocks dropped right from the opening bell, and for the second time this week the market was halted by ‘circuit breakers’ for 15 minutes after dropping 7%.

But despite the 15-minute break and the eye-popping pledge by the Federal Reserve to inject up to $1.5 trillion into financial markets, stocks failed to bounce back and ended near the lows of the day. The Fed action to add $500 billion today and $1 trillion tomorrow, March 13, was a result of growing stress in the bond market. Corporate bonds have been hit the hardest, as investors worry about heavily indebted oil, airline, and cruise ship companies who might default on their debt. But selling has spilled over into U.S. treasury bonds, with prices falling and interest rates rising today.

Usually U.S. government bond prices rise (and interest rates fall) when stocks fall, as investors try to buy safer assets. But the selling of U.S. Treasury Bonds shows that many investors are so squeezed for cash that they are having to resort to selling their bonds. This desperation selling also spilled over into the market for gold, another traditional ‘safe haven’ in times of economic uncertainty, as gold prices fell 3%.