Stocks sink as coronavirus spreads

Stocks tanked Monday amid growing fears that the spreading coronavirus will dent economic growth in the U.S.

The Dow Jones Industrial Average plunged 1,031 points, or 3.6 percent, the largest one-day drop since February 2018. The freefall erased all of this year’s financial gains, putting markets in negative territory for 2020.

The declines were sparked in large part by coronavirus outbreaks outside China, including 830 cases in South Korea and 800 in Japan. But it was an outbreak in Italy, where 220 patients were diagnosed, that stoked fears of a global outbreak.

“We had noted the economic impacts would be modest if it didn’t spread. The worry now is that it is spreading,” said Beth Ann Bovino, U.S. chief economist at S&P Global.

World Health Organization Director Tedros Adhanom Ghebreyesus said Monday that the coronavirus “absolutely” has the potential to become a pandemic.

Markets took little comfort in his other remarks, that the virus seemed to have already “peaked and plateaued” in China, where the outbreak originated. There are now 77,262 cases in China, the vast majority of cases reported worldwide.

Chinese President Xi Jinping said the outbreak was “the fastest spread, the widest range of infections, and the most difficult prevention and control in China” since its founding, according to state media.

Economists are predicting that the outbreak will shave several points off China’s already slowing economy, which in turn will affect global gross domestic product (GDP).

Bovino said the spread of the virus could throw a wrench into U.S. economic growth on a number of fronts, namely travel and tourism.

“A big drop in international travel to the U.S., whether it’s vacation or school or business, could be a factor,” she said. 

The SARS outbreak in 2003 halved tourism in China. If the coronavirus outbreak were to significantly spread to the U.S., the tourism industry would likely take a hit.

In Italy, for example, Venice canceled the final days of its Carnival celebration, while in Milan, the Armani Fashion House prohibited audiences from the debut of its Autumn-Winter 2020 show. 

The outbreak could also affect commodity prices and the oil industry. But one of the biggest areas under threat is trade. 

“My view is that this is going to cause a shrinkage of trade, at least in the first half of 2020,” said Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics in Washington. 

He estimated that trade could shrink by 3 percent through June.

Many economists expect the global economy will eventually rebound from any coronavirus dip but say the length of the duration and strength of a recovery would depend on how long it takes to contain the virus.

“The general air of uncertainty, which adversely affects business, won’t be lifted until we get some signal from the authorities that it’s contained and is no longer spreading at a rapid rate, and there’s some kind of vaccine,” said Hufbauer. 

Overall, he predicted the outbreak will bring GDP to just below a 2 percent annual rate for the first half of the year, instead of closer to 2.2 percent, and it could even push up the record-low unemployment levels that are hovering around 3.6 percent.

“I think we’ll begin to see an uptick in unemployment, but it won’t be dramatic. I don’t think anybody notices that figure until it goes above 4 percent, and I don’t think it will,” he said. 

President Trump, who is counting on a strong economy to boost his bid for a second term, sought to cool nerves about the virus.

“The Coronavirus is very much under control in the USA. We are in contact with everyone and all relevant countries. CDC & World Health have been working hard and very smart. Stock Market starting to look very good to me!” Trump tweeted Monday after the markets closed.

Still, the White House is preparing to request an emergency supplemental funding package from Congress, but has yet to settle on a final amount. Reports that the figure would be close to $1 billion drew criticism that more funds would be needed.

But some economists, such as Michael Hicks of Ball State University, argue that stock markets were probably due for a correction even before the coronavirus outbreak.

“The world economy has been slowing for more than a year, and parts of Europe and Asia, including China were in, or at the cusp of a recession prior to the discovery” of the coronavirus, he said.

“Stocks aren’t predictable, but the recent long growth of U.S. stocks are inconsistent with widespread economic slowing of the past year to 18 months.” he added.