Covid-19 panic thrashed the stock markets on 12 March, sending the US market into the biggest dip since 1987. The Dow Jones industrial average dropped by about 10%, or 2,300 points. The S&P 500 dropped 9.5%, and Nasdaq dipped by 9.4%. All three indexes now indicate that we’re in a bear market, down more than 20% from February. With Covid-19 spreading across the globe, the markets are taking a significant beating. Now, as stocks faced the worst day since 1987, let’s take a look at what’s actually going on in the US and around the world.
1987 Wall Street Crash vs 2020 COVID-19 Crash
The 1987 Wall Street Crash saw a rapid downturn in US Stock Market prices, over the course of seven days in late October. The crash started in the USA, but ultimately spread to every major stock market around the globe. On 19 October 1987, the stock markets fell 20% in a single day. It’s thought that the cause of the downturn is as a result of computer program trading models, which followed a specific portfolio insurance strategy, combined with investor panic.
That’s pretty similar to what we’re seeing today. Investors are panicking as the stock market crumbles, and selling off with an ever-increasing sense of urgency.
This is a global issue, not just within the USA
The indexes started out on the day on a down, and then climbed somewhat following the Federal Reserve’s announcement that it would take action to address “highly unusual disruptions” in trading of Treasury securities. However, it soon took a major downturn.
It’s not just the US that is suffering. The European markets dipped 12%, showing one of their worst days in recorded history. This came after the European Central Bank decided to buy up bonds and offer support to the economy.
How does this affect the South African stock market?
In South Africa, the Johannesburg Stock Exchange (JSE) plummeted over increasing concerns about the spread of Covid-19. On 13 March 2020, a day after the US dip, the JSE lost nearly 10% on its worst day in almost 2 decades. Investors are now dumping their riskier assets – causing an even bigger dip. The JSE is largely influenced by US stocks, so South African investors are watching the markets closely.
On top of the JSE hardship, the Rand isn’t doing much better. The Rand is currently trading down R17.64 to the USD at the time of writing – edging on the worst exchange rate ever recorded (R17.91).
Then came an announcement from South African President Cyril Ramaphosa that the country will be entering a 21-day nationwide lockdown from midnight on Thursday, 25 March. All non-essential businesses will be closed, the military and police deployed, and citizens will be required to stay in their homes. The country currently has over 700 Covid-19 cases, but with 7.7 million HIV positive people, the need to curb the virus is utterly imperative.
However, the lockdown hasn’t greatly affected the JSE, which will remain open throughout the 21 days. Essentially, that means that the stock exchange has been classified as an “essential service”.
US Stock trading ripple effects
Heavy losses were recorded amid an escalation in cancellations and shutdowns across the world, as well as Trump’s decision to suspend most travel to the US from Europe. Concerns about whether the White House will be able to manage the massive economic damage incurred as a result of the pandemic, are also playing into this situation.
“The news just continues to get worse, and the travel ban puts an exclamation point on the weakness we’re going to see in global GDP and, in turn, the U.S.,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “We’re starting to get a sense of how dire the impact on the economy is going to be. Each day the news doesn’t get better, it gets worse. It now has hit Main Street to a more significant degree.”
On Wall Street, stocks dropped so quickly at the opening bell that it resulted in a 15-minute halt to trading for the second time in a week. The “circuit breakers” were first adopted after the crash in 1987, but they haven’t been used since 1997. As stocks faced the worst day since 1987, the rest of the world is in free fall.
Here, we can really see the effects of the virus on the economy. On 19 February, the NYSE recorded the highest Stock Market in History – which then turned out to be the market’s peak. Since then, it’s fallen dramatically, down to levels that we haven’t seen in years.
Covid-19‘s path of destruction isn’t over yet
Covid-19 cases around the world are continuing to grow, as the pandemic has become an ever-growing global crisis. Now, some analysts are predicting a worldwide recession, with markets plummeting. The NYSE, incredibly influential on other Stock Exchanges, has taken a knock, with other exchanges, like the JSE, suffering too. As stocks faced the worst day since 1987, it’s clear that the virus has had a major impact on global economies. Will we enter into a recession? It certainly seems like we’re heading towards one. If the outbreak doesn’t slow down, many will almost definitely be impacted. This is a serious situation, but not one that is totally insurmountable. If only leadership would step up.