A Wild Ride for the Markets

As of March 10, the number of cases of the coronavirus had surpassed 114,000 worldwide. With concern spread across the planet, this is having major consequences for the global economy via flight cancellations, panic buying, and strict quarantine measures in some cases. Economists have warned that a global recession might be inevitable.

According to many experts, however, the decline in U.S. equities on March 9 appeared to be due to Saudi Arabia’s decision to offer deeply discounted oil prices following Russia’s refusal to follow OPEC’s plans for a reduction in oil production. With this development, Russia is at risk of potential falling oil revenues, even though its oil industry has a quality resource base and enough financial resilience to keep market share and remain competitive at any forecast price level. Foreign Policy  indicates that Saudi Arabia’s problem is Russia is more resilient to lower prices than it is, having added considerably to its foreign exchange reserves, while Saudi Arabia’s fiscal cushion has dwindled since the 2014 oil price collapse. Even with ample reserves, a prolonged period of low prices will strain the Saudi budget, undermine investor confidence, and lead to speculation about the devaluation of the Saudi riyal.

At the March 9 close of the U.S. financial markets, Boeing, Apple, Goldman Sachs and Caterpillar cut the index by at least 100 points each. The market decline represented its single-worst day since October 15, 2008, when it fell 7.87%.

Shortly before the market close on Tuesday, March 10, global stocks struggled to recover. Investors’ mood was initially helped by news of President Trump's proposal for "significant relief" in the form of a payroll tax cut and help for hourly workers most affected by COVID-19, along with expectations of additional stimulus measures as the risks of a global recession rise.

At Tuesday’s market close, the Dow was at 25,014, the highest of the day and with significant volume. Tuesday’s increase today was almost 5% above the morning’s opening bell. On March 9, the Dow lost 2,013 points and closed at 23,851; as of Tuesday’s close, nearly 50% of the previous day’s decline had been recovered. Stay tuned. As long as the uncertainty due to the corona virus remains, the markets might be in for an extended, bumpy ride.