World Stocks Down $5 Trillion
This is bigger than President Trump's incompetence.
US stock markets are down more than 12 percent this week. While it’s tempting to blame that on well-founded fears that President Trump is poorly managing the US response to the coronavirus, it’s part of a global phenomenon.
Coronavirus panic sent world share markets crashing again on Friday, compounding their worst week since the 2008 global financial crisis and bringing the wipeout in value terms to $5 trillion.
The rout showed no signs of slowing as Europe’s main markets slumped 2-3 percent early on and the ongoing dive for safety sent yields on U.S. government bonds, seen as probably the securest asset in the world, to fresh record lows.
Hopes that the epidemic that started in China would be over in months, and that economic activity would quickly return to normal have been shattered this week as the number of international cases have spiraled.
Bets are now that the Federal Reserve will cut U.S. interest rates as soon as next month and other major central banks will follow to try and nurse economies through the troubles and stave off a global recession.
“Investors are trying to price in the worst case scenario and the biggest risk is what happens now in the United States and other major countries outside of Asia,” said SEI Investments Head of Asian Equities John Lau.
“These are highly uncertaint times, no one really knows the answer and the markets are really panicking.”
Disruptions to international travel and supply chains, school closures and cancellations of major events have all blackened the outlook for a world economy that was already struggling with the U.S.-China trade war fallout
MSCI’s all country world index, which tracks almost 50 countries, was down over 1 percent once Europe opened and almost 10 percent for the week — the worst since October 2008.
Wall Street shares had plunged 4.4 percent on Thursday alone which was its largest fall since August 2011. They have now lost 12 percent since hitting a record high just nine days ago, driving into so-called correction territory.
The CBOE volatility index, often called the “fear index,” jumped to 39.16, its highest in about two years, well out of the 11-20 range of recent months.
The index, which measures expected swings in U.S. shares in the next 30 days, typically shoots up to around 50 when bear market selling hits its heaviest and approached almost 90 during the 2008-09 financial crisis.
This seems to be a black swan event. Trump’s incompetence and untrustworthiness is not helping matters but they’re a really small part of the picture.
The impact on the global and US economy is certainly going to be substantial but nobody knows how far this will spiral.
It will almost certainly impact the US Presidential election. While one would think it would make Trump’s re-election prospects worse, that’s not a certainty. The American people may well not want to hand the reins to a President Sanders.