Wednesday, 28 September 2022

Dow sees worst drop since 1987 amid coronavirus fears

The Dow Jones industrial average plummeted 2,997 points or 12.9% on Monday, 16 March, due to the continued worry over the sweeping economic impact of the COVID-19 pandemic. The S&P 500 suffered as well, seeing an 8.1% drop within a minute of the open – causing a market-wide 15-minute trading halt.

The final hour of trading saw the continued plunge of major US stock indexes. By the close, all major indexes slid by 12 to 13%. S&P 500 experienced a 12% drop (2,386.13) whilst Nasdaq composite also fell 12.3% (6,904.59).

On Sunday, 15 March, the Fed cut its benchmark interest rate to near zero. It has also announced a $700 billion increase in bond holdings as well as a reduction in the reserve requirement ratio to 0%. Whilst central banks all around the world have reacted the same way, traders in the US do not seem convinced with the Federal Reserve’s stimulus efforts to combat the pandemic’s blow.

"The Fed has thrown most its weight behind this move, offering almost everything it has to give, which raises the inevitable question: If this doesn't work, what will?" Principal Global Investors chief strategist Seema Shah told Business Insider.

An increasingly uncertain landscape looms over investors as new infections continue to rise and countries – as well as many parts of the United States – go on lockdown.

Other risk assets have not fared so well either. Oil lost as much as 29% and fell below $30 per barrel. This comes on the heels of OPEC and its allies threatening to push supply to record levels and increased demand due to the outbreak.

Safe-haven assets treasuries and gold were not spared. The surge in treasuries has caused yields to go down. Market panic, meanwhile, has led many investors to sell gold for cash. 

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