The Stock Market Crash of 2020: Is it Really Because of COVID-19?

There’s a global epidemic happening, and the world is in panic. An outbreak that started in China had now infected hundreds and thousands of people globally. Reported cases of coronavirus death had also been increasing, fueling the hysteria people feel about the still mysterious virus plaguing the world. 

Because of this, many are advised to stay in their homes and avoid crowded places for the time being. Businesses, both big corporations and small, local ones, are suffering from loss due to less foot traffic in their establishments. Aside from the lives directly threatened by the virus, the global economy is also widely affected by the epidemic.

The Black Monday of 2020 

On March 9, 2020, the world has witnessed a significant fall in the global stock markets since the 2008 Great Recession. For 12 years, the world hadn’t seen any stock market crash like this until very recently. The stocks had dropped sharply, and a circuit breaker was triggered just after.

Ever since February 24, 2020, the stock market had been extremely volatile. Since the COVID-19 global outbreak, the Dow Jones Industrial Average and FTSE 100 had dropped more than 3%., and on February 27, the Dow fell 1, 1911 points. The next day, the entire global stock market had reported declines, their largest one since the 2008 financial crisis.

On March 3, there was an increase in the European and Asia-Pacific stock markets. However, the Dow Jones Industrial Average, S&P 500, and NASDAQ Composite all fell. The market continued to struggle until it finally crashed on March 9.

The Dow Jones Industrial Average had a 300-point decline on Monday. It had logged a 2,014-point drop, the largest in recorded history, and equated to a 7.7% decline. Nasdaq Composite, on the other hand, shed 625 points or in percentage, a 7.79% decline, while S&P 500 dropped 226 points, which equates to a 7.29% loss.

So, is the COVID-19 the reason why the stock market crashed last Monday? The answer is yes, and no. Yes, because the coronavirus had active participation in the crash, and no since it’s not the only factor single-handedly causing the event. Although it still played a major contribution as to why it happened in the first place.

Along with the global pandemic of the disease, the oil industry is also facing a significant crash. The world’s largest oil producers, Saudi Arabia and Russia, had a dispute during the meeting in Vienna last week. Both parties debated on who would slash oil output to balance the decreasing demand due to the coronavirus outbreak.

How Does COVID-19 Affect the Economy?

Every outbreak that affected the world had always made an impact not only on the people’s health but also on the global economy. In 2003, when the SARS Outbreak had been discovered, with 8,000 infected and 776 killed, it had cost the global economy an estimated loss of $50 billion. The same went with the MERS outbreak in 2015, which only infected 200 people and killed 38, but still managed to cost the global economy an estimate of $8.5 billion.

The coronavirus is no different from these outbreaks. However, with the number of infected and dead individuals compared to its predecessors, it had a bigger effect on the economy. Since 7% of the U.S. GDP relies on travel, tourism, and entertainment, the coronavirus epidemic will disrupt these industries. Amusement parks, casinos, and live performances will be affected by the precaution the people practice and the government advises.

If these industries continue to face disruption, there will be a significant drop in the economy. Assuming that it will have a temporary 10% drop during three months in spending on these industries, it will lower the GDP by 0.7% overall. An economy that grows about 0.5% in a quarter will be impacted greatly.

Not only that, other jobs that include direct service to people are also at risk. Medical practitioners and first responders are on the front lines in combating this disease. Restaurants, especially ones specializing in Chinese cuisine, had seen a massive drop in their business.

In Seattle, restaurants have reported a 40% drop in business just last week, according to the Washington Hospitality Association. This is due to the first reported case being a man who lived near Seattle, and the state has the most death count in the US with 24 reported cases. Many had resorted to takeout to keep up with the demand of those working from home.

COVID-19 and the Oil Industry

The coronavirus also affected the oil industry, leading to a price war during the weekend between Saudi Arabia and Russia. With the demand for oil decreasing due to the outbreak, a meeting between the OPEC and Russia happened in Vienna last Friday. According to the sources, Russia had proclaimed it was severing its ties with the alliance, causing Saudi Arabia to warn that the country would deeply regret the decision.

Because of travel restrictions and continued government warning that discourages traveling abroad, especially countries with confirmed cases of the virus, oil prices had reached an all-time low. The prices had dramatically fallen during mid-February but were on a steady rise when new cases had slowed in China. Last week, however, as new reports of infected cases began to increase, the prices were knocked down.

This is the biggest fall oil prices had suffered since 1991. Brent crude, the international standard, was down 22%, with the last trading being $35.45/barrel. During 2016, when the oil prices plunged to $30/barrel, Saudi Arabia and Russia formed the OPEC+ alliance to address the issue. The two exporters had orchestrated supply cuts of 2.1 million barrels/day.

Because of the weaker consumption in 2020, Saudi Arabia proposed to increase the number to 3.6 million, which Vladimir Putin, Russia’s president, refused. This is due to concerns regarding yielding too much ground to American oil producers. On Friday, his energy minister, Alexander Novak, said countries could battle for the market share and produce as much as they want from April 1.

Because of the coronavirus and the ‘oil price war‘, drive gas prices can go as low as $2/gallon. According to AAA, the national average price gas was at $2.38 on Monday. It was 6 cents lower compared to last month, where gas prices should be higher because of the summer season.

Financial Management amidst the COVID-19 Outbreak

Getting financial advice during an epidemic is important since we don’t know what will happen to us and our family’s health. That’s why if you’re looking for guidance on the matters of money, you can count on Wealth Advice. Be it for your health, investments, or your future- they got you covered. You can visit their site to learn more about their services.

Takeaway

The COVID-19 is a serious issue that doesn’t only threaten our wellbeing, but also the economy of our country. It’s outbreak made such a massive impact on businesses, that it affected the oil industry and crashed the stock market. However, economists believe that for a recession to occur, the effects would still have to spread beyond travel, manufacturing, and other sectors that are directly affected by the disease.

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