Stocks Tumble over Coronavirus fear! Stocks Tumble yet again as the S&P 500 Index dropped more than 3% in early trading Friday. The index is on track for its worst week since the 2008 financial crisis.
The current sell-off is fueled by worry that measures to contain the virus would cut into corporate profits and economic growth. Investors are also afraid that the outbreak could get worse. The panic selling has dragged stock benchmarks around the world into a technical correction.
The potential coronavirus outbreak in the United States represents a significant test for President Trump, whose presidential success has been deeply tied to the economy and a rising stock market.
Asian and European markets also slid, with commodities following – Brent Crude fell as low as $50.05 a barrel – it was above $71 earlier in January. Goldbugs and Bond investors are pouring their money into these traditionally safer forms of investments.
The Federal Reserve also signaled their willingness to cut interest rates if the outbreak worsens. But rate cuts may have a limited effect: they work by stimulating demand. But cuts do little to restart factories and correct supply chain problems due to illness or lack of manpower.
Companies have started to respond as well, with companies like Microsoft warning that Chinese manufacturing and shutdowns will affect their sales. It’s not just China – at least 53 countries have sick individuals thus far. Hundreds of companies have begun taking measures to try to prevent the illness from afflicting their workers – many are exploring work-from-home opportunities.
The consequences are potentially grim – we’re seeing the first results of the reactions to the coronavirus. We actually do not know what the extent of the damage could be economically, but invest bank economists continue to issue glum predictions of how much the coronavirus outbreak could hurt economies around the world.
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