What Caused This Market Crash?

What Caused This Market Crash?

As the US market opened, everyone knew that the only direction to go was down. The only question was how far.

However, no one could have predicted that the Dow Jones Industrial Average would drop 2,014 points over the course of the trading day, a one day drop of almost 8%. It was a drop so bad that it called markets to be halted for 15 minutes, stopping trading completely in order to prevent it from dropping any further. The other two major US stock indices, the NASDAQ and S&P 500, followed suit with similarly shocking drops of 7.3% and 7.6%, respectively.

The question is, what has caused this extreme drop in virtually every market?

As expected, the market had already been bearish on all fronts since the beginning of last month due to the coronavirus, causing some of the biggest market movements in history in just the last few weeks. The Dow had just dropped over 1000 points just two weeks earlier.

The coronavirus had already presented itself as a significant threat, and has since only continued to become more deadly.

For one, the proper arrival of the virus in the States, and the Trump administration’s subsequent efforts to combat it, have not produced any faith whatsoever. The first thing President Trump did was go in front of the press and say that there were only about 10 cases in the country when there were 52 reported cases at the time, and claim that a vaccine was on the way, which a White House representative had to later correct and say he meant a vaccine for the Ebola virus.

Then, when the threat of the virus could be ignored no longer, the next thing he did was to assign Vice President Mike Pence as head of the coronavirus task force, supplanting the Secretary of Health and Human Services Alex Azar. Pence has had to be brought up to speed on everything regarding a virus which is fast spreading and could very easily grow out of control.

Next, cities and states across the country reported that they still did not have enough test kits to be able to track the spread of the virus.

Trump’s chief of staff, as well as many other senior officials, have entered self-isolation after coming in contact with infected individuals. Most recently, Trump and Pence attended an event where an individual with the coronavirus was present. White House representatives have said that Trump has not been tested for coronavirus.

Investors to take these actions as evidence that the Trump administration is incapable of combating this crisis effectively, and the result of their low faith can be seen in the stock market.

However, this week’s opening crash was due to a variety of factors, not just the coronavirus scare. Of course, the other biggest factor that caused the markets to crash was the drop in oil. As covered in 1000 points just two weeks earlier, both WTI crude and Brent oil experienced one of their biggest drops in 30 years, to prices not seen since the Gulf War. Interestingly enough, crude oil has now made a slight rebound. After hitting a low of $28 per barrel, WTI has now come back up above the $30 mark and seems to be holding steady for the time being. It was miniscule to say the least, but the price seems to at least have stabilised again after what was feared to be a free fall drop with no floor the previous day. As America is the largest producer of oil in the world, Saudi Arabia’s forced price war could cause many oil businesses in the US to lose their jobs, if these prices are to continue.

Outside of the US, Italy has now spread its quarantine to the entire country, affecting 60 million people. This nationwide lockdown is an unprecedented effort to stop the spread of the virus, something no other country has even attempted yet, if this move doesn’t show how serious the epidemic has become. Of course, Italy now has the most deaths from the coronavirus outside of any country apart from China, with 463.

You really can’t expect a major European country to enter complete lockdown and not expect the markets to react negatively. In combination with all the other factors, and its no surprise investors seem to be expecting a global recession. Not too long ago, I wrote an article looking at whether or not the coronavirus would cause an economic recession. And it certainly looks to be going that way now more than ever.

Perhaps these market movements were just the result of a panic selloff. At the time of writing, stocks have now made a slight rebound after the initial crash, with the Dow back up 800 points.  However, there is no denying that with the current market sentiment, the outlook is unbearably negative. It’s looking like things are going to have to be worse before they get better. One thing’s for sure, this level of market volatility isn’t going anywhere anytime soon.

For more information, watch our video here by Anish Lal here at BlackBull Markets, or on Instagram and Twitter at BlackBull_markets and @BlackBullforex, respectively.

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