Dow plunges as much as 2,000 points, oil crashes as price war erupts and coronavirus spreads

Government must keep cool head, let markets work: Art Laffer

Former Reagan economist Art Laffer warns against a government overreaction to coronavirus given its track record failed intervention.

U.S. equity markets were sharply lower Monday morning after an oil price war broke out between Saudi Arabia and Russia and the new coronavirus showed signs of spreading.

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The Dow Jones Industrial Average was down by as many as 2,046 points, or 7.9 percent, in the opening minutes of trading while the S&P 500 and Nasdaq Composite were lower by 7.4 percent and 7.3 percent, respectively. Trading, which was already halted for 15 minutes, will see another stoppage if the S&P 500 trades down 13 percent.

THE VIX EXPLAINED

The steep slide has caused the New York Federal Reserve to increase its daily cash injections into the banking system to $150 billion from $100 billion.

TickerSecurityLastChangeChange %
I:DJIDOW JONES AVERAGES24205.39-1,659.39-6.42%
SP500S&P 5002796.92-175.45-5.90%
I:COMPNASDAQ COMPOSITE INDEX8133.432266-442.19-5.16%

The stock-market selloff comes after a production dispute between OPEC members, led by Saudi Arabia, and Russia sent West Texas Intermediate crude oil, the U.S. benchmark, plunging by as much as 33.8 percent, the most since the outbreak of the 1991 Persian Gulf War, to a low of $27.34 a barrel in overnight trading. After a small rebound, WTI was trading down 21.4 percent at $32.42 a barrel.

Oil majors, including Exxon Mobil, Chevron and BP, were sharply lower, as were service providers Haliburton and Schlumberger.

TickerSecurityLastChangeChange %
XOMEXXON MOBIL CORPORATION43.29-4.40-9.22%
CVXCHEVRON CORP.82.42-12.90-13.54%
BPBP PLC25.44-5.81-18.59%
HALHALLIBURTON COMPANY8.33-4.74-36.27%
SLBSCHLUMBERGER LIMITED16.89-6.96-29.16%

Elsewhere, travel-related names remained under pressure after Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, warned Americans with underlying conditions not to take long plane trips or cruises due to the new coronavirus outbreak.

TickerSecurityLastChangeChange %
AALAMERICAN AIRLINES GROUP INC.14.90-1.07-6.70%
UALUNITED AIRLINES HLDG.47.84-4.26-8.18%
DALDELTA AIR LINES INC.43.92-1.97-4.29%
CCLCARNIVAL CORP.22.38-4.78-17.59%
EXPEEXPEDIA GROUP, INC.86.93-4.58-5.00%

Some drugmakers working on treatments for COVID-19, including Inovio Pharmaceuticals and BioCryst Pharmaceuticals were sharply higher.

TickerSecurityLastChangeChange %
INOINOVIO PHARMACEUTICALS10.44-3.65-25.90%
BCRXBIOCRYST PHARM3.63-0.48-11.57%

U.S. Treasurys were the beneficiary of the flight to safety with heavy buying pushing longer-dated yields lower by more than 30 basis points. Overnight, the benchmark 10-year yield fell to a record low of 0.38 percent before bouncing to 0.433 percent. Likewise, the 30-year yield plunged below 1 percent for the first time ever, and was down 36.8 basis points at 0.854 percent on Monday morning.

The drop in Treasury yields accompanies expectations the Federal Reserve will cut rates by 100 basis points at its March 18 meeting, lowering its key interest rate to a range between 0 and 25 basis points.

The expectation of the oversized rate cut is putting pressure on financials, which typically make 50 percent to 75 percent of their net revenue from the spread between the interest paid to depositors and the interest charged to borrowers. Lower rates mean the banks will make less per loan.

J.P. Morgan Chase, Bank of America and Truist were all tumbling. Meanwhile, Wells Fargo was in focus after board chair Betsy Duke resigned.

TickerSecurityLastChangeChange %
JPMJP MORGAN CHASE & CO.95.59-12.49-11.56%
BACBANK OF AMERICA CORP.22.21-3.50-13.59%
TFCTRUIST FINANCIAL34.82-5.85-14.38%
WFCWELLS FARGO & COMPANY33.52-3.56-9.61%

In Europe, Italy’s MIB was down 11.5 percent after the country’s government on Sunday put 16 million people in the northern region of the country on lockdown in an effort to prevent the spread of COVID-19.

Elsewhere, in the region, France's was lower by 8 percent while Germany's DAX and Britain’s FTSE were both off 7.9 percent.

Overnight, Japan’s Nikkei paced the decline in Asia after the country’s government lowered its fourth-quarter gross domestic product to an annualized drop of 7.1 percent, down from 6.3 percent. Taking inflation into account, the drop was 1.8 percent on a seasonally adjusted quarterly basis.

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Meanwhile, China’s trade surplus swung to a $7.1 billion deficit – the first since March 2018 – in the first two months of the year. China’s Shanghai Composite fell 3 percent and Hong Kong’s Hang Seng shed 4.2 percent.

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