US Stock Markets Crash, Oil Adds to Coronavirus Woes

  • Futures are pointing to a massive fall in US stock markets today. The markets have fallen over the last two weeks. There will likely be more pain ahead.
  • While the coronavirus was the biggest fear for equity investors a few days ago, the crash in oil prices has compounded the woes. The Dow Jones and the S&P 500 might start the week on a negative note.

US stock markets crash

US stock markets have crashed over the last two weeks. The Dow Jones Industrial Average Index (NYSEARCA:DIA) and the S&P 500 (NYSEARCA:SPY) have fallen 10.8% and 10.9% over the previous two weeks. Both the Dow Jones and the S&P 500 are in the correction zone, which means that they have crashed 10% from their peak. If markets fall 20% from their peak, they enter the bear market territory. US stock markets are in their longest bull market. Exactly 11 years ago, the S&P 500 fell to 676 points—its lowest level during the 2008–2009 financial crisis.

Latest coronavirus news

Coronavirus fears have spooked investors globally. As a result, the US and international stock markets have tanked. The situation has started to stabilize in China—the epicenter of the pandemic. However, cases are rising in other countries—especially in Iran, Italy, and South Korea. The coronavirus cases in the US have also increased. Coronavirus-led shutdowns and quarantines impact economic activity. The travel and tourism sector has been hit the worst. People aren’t traveling due to safety. Meanwhile, Berkshire Hathaway increased its stake in Delta Airlines despite the coronavirus scare. Chairman Warren Buffett underplayed the long-term impact of the coronavirus on the US economy.

Oil is the new trouble for US stock markets

The coronavirus isn’t the only factor behind the fall in US stock market futures today. The OPEC+ bloc hasn’t reached a consensus on the oil production cut. Notably, OPEC’s decision to not cut the output in November 2014 triggered a collapse in oil and commodity prices. China’s slowdown fears also compounded the problems. Metals and mining stocks tumbled in 2015. However, they bounced back in 2016 as metal prices surged.

Outlook

We entered 2020 with a sense of optimism. There was a calm in the US-China trade war. US stock markets also priced in a possible Trump victory in the 2020 presidential election. Analysts expected corporate earnings to also bounce in 2020 after a dismal 2019. However, the coronavirus has changed the picture. The virus hurt global growth and corporate earnings. According to a FactSet report, S&P 500 companies will likely report a yearly decline in their first-quarter earnings.

Pundits predicted a US stock market crash last year. Instead, the S&P 500 and the Dow Jones had one of their best years. For 2020, most analysts expected a flat year. However, US stock markets have crashed. Even with the crash, valuations are high by historical standards. Read Do US Stock Market Valuations Signal a Crash Ahead? to learn more.