Why the coronavirus is tanking the stock market, explained simply

The stock market has fallen so hard and so fast that trading on the New York Stock Exchange has been automatically stopped for 15 minutes in a second “circuit breaker” moment this week.

Investors are reacting to the coronavirus and its effects, as well as oil price wars.

the World Health Organization declared the spread of COVID-19 to be a pandemic

The Director-General of the WHO said, “We are deeply concerned both by the alarming levels of spread and severity and by the alarming levels of inaction.”

The fear is that the coronavirus is spreading, and will lead to more widespread slowdowns in the economy as people are pulled out of economic activity as they’re stuck at home, discouraged from going to restaurants, afraid to visit malls, and more.

investors are concerned over the US response to the spread of the coronavirus

The President spoke to the nation as an attempt to bring calm to the country and the stock market. Instead, stocks plummeted.

Geek out on the full text of President Trump’s address to the nation here.

they see a late start to testing

The World Health Organization had test kits for the US but the US declined them, deciding instead to use their own CDC kits. Turns out, the CDC kits were defective, causing weeks of delays in testing. This was not addressed by the President. Also not addressed was our healthcare system and its preparedness.

and a perceived lack of concern by the President

President Trump has described the coronavirus as a “hoax,” and he has disputed CDC guidelines and estimates for how virulent the virus may be. During the worst single-day decline in the stock market, while at Mar-A-Lago, he tweeted:

President Trump seems to be arguing that the market reaction is paranoia created by a fake news media. But, according to investors, the market reaction is concern over a global slowdown in economic activity due to the pandemic.

In order to have fears over the continued spread (and therefore the continued economic slowdown), investors want to see consistent messaging from the White House with regard to the seriousness of the disease, and a plan from which to combat it.

After Trump finished his remarks, the Department of Homeland Security had to clarify that the new order would not stop all travelers from Europe, only foreign nationals traveling from Europe to the U.S.

a few mistakes in the President’s message

In the President’s address, he made at least two points that were factually incorrect, and that had to be walked back. He said that we would not allow trade and cargo from the EU into the country but the ban does not include goods.

And, he said that there would be no co-payments for coronavirus treatments, but he meant no co-payments for coronavirus tests.

also significant to the stock market is the drop in oil price

As the world economy has slowed with the outbreak of the COVID-19, demand for oil has decreased.

When demand decreases, price drops. In order to offset this, OPEC (Organization of the Petroleum Exporting Countries) got together and decided to slow the production of oil. This would cause supply to decrease, and would help to stabilize prices. Russia, also an oil exporter, but not an OPEC country, refused to comply.

In order to assert itself, Saudi Arabia said they would then INCREASE supply and decrease prices further–probably in order to run Russia out of the oil business.

Saudi Arabia’s move means that US oil prices dropped. This is great for consumers at the pumps, but US oil producers can’t stay in business with prices this low, which could drive US oil companies out of business and lead to forfeitures on loans.

According to the WHO, China and South Korea have used effective techniques to contain the spread of COVID-19. How does China’s reaction to the coronavirus differ from the U.S.? Check out the debate here.


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