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Coronavirus Sentiments Paralyze Global Markets

In the following months after the first reported outbreak of the Covid-19 virus from Wuhan, China in the beginning of February, global markets have experienced a sudden downturn as investors fled the stock market after a surge of coronavirus cases outside of China, intensifying fears of global economic shutdown. The spike of coronavirus cases beyond China has erased $1.7 trillion in global stock market values on Monday (24/2). More than 80,000 cases have been confirmed worldwide, including just under 1,000 in South Korea, more than 280 in Italy, and 53 in the United States.

On Monday (24/2), The Dow Jones Industrial Average closed 1,031.61 points lower, or 3.56%, at 27,960.80. The S&P 500 slid 3.35% to 3,225.89 while the Nasdaq Composite closed 3.71% lower at 9,221.28. It was the worst percentage drop in more than two years for the indices, and the three composites wiped out its year-to-gain from the beginning of 2020. The Vix Volatility Index – considered to be the best measure on investor fears in Wallstreet – jumped more than 19% to a level of 29.06. Sectors directly related to the virus dropped even lower. Airlines (Delta and AmericanAirlines) and casinos (MGM, Las Vegas Sands) were down 5 to 6%. Chipmakers, highly dependent on global manufacturing were also down extremely, with Nvidia, Intel, and AMD experiencing a 7% downturn. Internationally, The European Stoxx 600 dropped more than 3% while Korea’s Kospi index slid 3.9%.In Hong Kong, the Hang Seng index fell 1.8%, showing an international sell-off of stocks. Even in Indonesia, the JCI Composite on Thursday (27/2) experienced a 4% dropoff.

The crisis caused significant impact as awareness of the severity of the virus – which was downplayed among investors until this week – has increased concerns about global financial stagnation. Mohamed El-Erian, Chief Economist at Allianz, had previously warned investors to “resist” the urge to “simply buy the dip.” “The second-largest economy in the world is completely shut down. People aren’t totally pricing that in,” said Larry Benedict, CEO of The Opportunistic Trader. “There remains a large degree of uncertainty surrounding the virus, and no one knows how this will ultimately play out,” said Keith Lerner, chief market strategist at Truist/SunTrust Advisory.


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