The stock markets turned bloody red yesterday and closed in a strong downward trend. The leading stock market indexes, S&P 500 and the Dow Jones lost 12 and 13 percent, respectively at closing time. The biggest losses in a day since 1987, following already dramatic losses over the past two weeks.
Calm before the storm
The last wave of sales on the stock market was triggered by Donald Trump’s speech, in which he stated that the pandemic could last until July or August and could potentially lead to a recession. The speech took place at the end of a day when investors already had endured great losses. Immediately after the opening of the stock exchange, trading came to a 15 minute halt and provided a brief moment of calm before the storm. It was the third time in a week already that actions out of panic were prevented.
The European markets were also coloured red, although they were still able to limit the losses to some extent. The AEX closed 3.7 percent lower. The total loss since mid-February is now around 34 percent.
The ball is in the government’s court
‘Investors are already assuming a very severe recession’, says Mary Pieterse-Bloem, Professor of Financial Markets at Erasmus School of Economics and Global Head Fixed Income at the Global Investment Center of the Private Bank of ABN AMRO. Central Banks are doing everything to soften the pain but eventually, as Pieterse-Bloem says, ‘the ball is in the government’s court: the Trumps, Merkels and Macrons of the world. They are the ones who have to come up with powerful measures to stimulate the economy.’
These measures have already been announced by several governments, but the policies have to be more concrete, Pieterse-Bloem believes. ‘The measures should reach businesses in time before large-scale disasters happen.’
Anxiety barometer
The big question is how long the spread of the virus will continue and how long these economically harmful measures are needed to contain it. The so-called anxiety barometer ,VIX, which measures the nervousness and pressure on the American stock exchange, has never been as high as today. Not even in 2008. ‘At that time, it took 17 months to drop 59 percent,’ says Pieterse-Bloem. ‘Now we lose dozens of percentage points in just a few weeks.’
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Read the full article on NOS here. (In Dutch)
