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Investors ‘guessing’ on virus, assuming worst Print E-mail
Written by Robert Smith   
Monday, 09 March 2020

No one knows where the coronavirus will show up next, whether authorities can contain it or how much damage it will leave behind. But professional investors aren’t taking any chances.

Spooked by uncertainty over the outbreak and an ill-timed oil war between Russia and Saudi Arabia, panicked Wall Street traders dumped stocks Monday, turning a steady retreat into a full-blown rout in the worst burst of selling since the 2008 financial crisis. Seeking safety, they poured money into U.S. Treasurys and sent benchmark interest rates to astonishing lows.

“Everyone is guessing and assuming the worst,″ said Robin Brooks, chief economist at the Institute of International Finance, a global banking association.

The Dow Jones Industrial Average plummeted nearly 8% as American stocks moved closer to bear market territory.

Even so, financial advisers doled out this advice to ordinary investors: Remember your long-term goals and resist the urge act rashly.

Financial markets have been alarmed by the speed with which COVID-19 broke out of China and spread around the world. The virus has infected nearly 114,000 people in 111 countries and regions and killed almost 4,000. Italy is imposing nationwide travel restrictions Tuesday and appears all but certain to fall into recession, perhaps leading other European countries into a downturn.

Business and leisure travel around the world has slowed sharply in the face of the outbreak. The result is a dire financial blow for the travel and tourism industries and small businesses that depend on their customers.

In the United States, Jeff Schulze, investment strategist at ClearBridge Investments said, “the odds of a recession have risen materially.″

After markets closed Monday, President Trump said his administration will ask Congress to cut payroll taxes and provide relief to Americans who have to stay at home because of the virus and can’t collect a paycheck. The measures are meant to support the economy and calm recession fears.

“The economy will be in very good shape a year from now,″ Treasury Secretary Steven Mnuchin told reporters. “This is not like the financial crisis.″

Raising anxiety are troubling unknowns: How fast will virus continue to spread? How deadly will it prove to be? Are policymakers up to the task of bringing it under control? Will the measures they take — including massive quarantines — stifle economic growth?

“Uncertainty is very high. We know what uncertainty does to markets,″ said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics. “It’s a crisis that’s right here, right now, and it’s global.″

Adding to the tumult, oil prices cratered Monday after Saudi Arabia vowed to boost production, giving up efforts to hold off and prop up prices. That’s bad news for countries and companies that need higher oil prices to balance their budgets, pay their debts or make a profit.

 

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