Global Stocks Plummet Amid Coronavirus Fears

February 28, 2020

Stock markets around the world have been falling dramatically all week due to fears surrounding the spread of the coronavirus. If global exchanges continue with this cycle of massive selloffs today, then the past week could represent the biggest stock market drop since the height of the 2008 financial crisis. And it’s not looking too good so far: “We’re drinking from a fireman’s hose this morning,” said Patrick Spencer, managing director at the investment firm Baird. “It wasn’t a good close last night and certainly panic ensued.”

With more than 82,000 cases of coronavirus reported so far, businesses across the globe are temporarily closing operations as governments limit travel in an effort to contain the disease. These drastic changes in day-to-day operations have caused stock markets to plummet with no end currently in sight. “With cases now spreading even faster outside China and U.S. companies starting to issue profit warnings over this outbreak, the market is repricing due to the severity of this outbreak,” said Paul Chew, head researcher at Phillip Securities.

While some analysts have compared the recent market dropoff to the 2008 crisis, others claim it is more similar to the 2000 crash since it is driven by a large amount of uncertainty. “It’s a different kind of an event because we’re reacting to what might happen, whereas in the [2008] crisis we were reacting to what was actually going on in real time,” said economist Peter Dixon. “It’s almost impossible for investors and analysts to make any sensible predictions as to what might happen—we’re very much flying blind.” Travel companies have been hit especially hard this week, with shares in Royal Caribbean Cruises and American Airlines each crashing by about 20 percent. 

Questions:

  1. Why have global stock markets dropped significantly over the past week?
  2. How does this recent stock market drop differ from the 2008 crash?

Source: Avantika Chilkoti and Chong Koh Ping, “Stocks on Track for Biggest Weekly Losses Since 2008,” The Wall Street Journal, February 28, 2020.

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