S&P 500 Down 18.5% on Coronavirus and Oil – Here’s the Plan

Home » S&P 500 Down 18.5% on Coronavirus and Oil – Here’s the Plan

S&P 500 Down 18.5% on Coronavirus and Oil – Here’s the Plan

It was a brutal day on Wall Street. US stocks has their worst day since the 2008 financial crisis. Here are the stats.

  • The S&P 500 fell 7.6%.
  • The NASDAQ fell 7.3%.
  • Global Dow fell 7.7%.

The S&P 500 is down 18.5% from the 52-week high, just short of a bear market which is a decline of 20% from the 52-week high.

The Big Plunge Was Triggered by Two Events

Oil plunges 30%: The price of oil cratered by more than 30% after two of the biggest oil producers in the world, Saudi Arabia and Russia, vowed to flood the global oil markets. Lower oil prices might seem like an economic stimulus – but that’s not entirely true.

That decline triggered huge losses in the stock market because when oil prices fall below $50 many US shale producers are no longer profitable.

That is a problem because these energy companies have borrowed hundreds of billions of dollars they may no longer be able to pay back to the banks. That’s why JPMorgan (JPM) fell 13% today.

Here is some more analysis from CNBC.

Jim Cramer says he could see ‘9 or 10’ oil companies going bankrupt if crude declines persist

Coronavirus continues to spread: Stocks also struggled with more bad news on coronavirus. For example, the entire country of Italy is now under a quarantine.

Here is a quick rundown from zerohedge.com.

  • First 2 Coronavirus deaths recorded in Germany
  • Italy reports 1,797 new cases, bringing total to 9,172 as deaths increase by 27% overnight, to 463
  • Santa Clara reports second coronavirus death
  • 3 more deaths confirmed in Washington State
  • LA reports first case of community spread
  • De Blasio says NYC quarantine “a possibility”
  • WHO’s Dr. Tedros says threat of pandemic has become “very real”
  • Confirmed cases near or pass 1,000 in France, Germany and Spain.

Italy Expands Quarantine Throughout Country As Coronavirus Cases, Deaths Surge: Live Updates

What Should We Expect in the Next Few Days?

No question this was a very tough day for stocks. And the outlook for coronavirus is uncertain. The global economy has never seen anything like this.

However, despite these challenges, I see reasons to be optimistic.

In the short run I am expecting global governments and central banks to start stepping in to support the market any minute now.

That includes:

  • Lower interest rates.
  • Fiscal stimulus packages to support the economy and stocks.

In fact, top white house officials are currently in talks to launch something big.

Here are some more details from Politico.

Top White House and Treasury officials are scheduled to meet with President Donald Trump on Monday afternoon to discuss options for fiscal stimulus measures amid the uncertainty over the spread of the coronavirus throughout the U.S.

Among the options under consideration: paid leave for workers, relief for small businesses and aid to certain sectors facing diminished business due to the virus. Economic officials have also begun weighing the idea of providing government-backed relief to specific geographic regions in the country hit hard by the outbreak. Amid all the economic uncertainty, the Trump administration has invited top Wall Street executives to the White House on Wednesday.

Trump to meet with economic team to hash out fiscal stimulus measures

If we do wee some kind of ‘rescue package’ or lower interest rates I expect it to trigger a big rally in stocks.

In the long run, no matter how this plays out the stock market has never failed to recover from even the worst global events, including world wars, depressions and recessions.

For the time being my plan is to look for a short-term rescue package. That would go a long way to soothe the market.

I’ll be back in a few days with another update.

Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.

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