The Daily - The Latest: Why Markets Crashed on Monday

Episode Date: March 10, 2020

Within minutes of the U.S. stock market opening on Monday, the S&P 500 sunk so swiftly that it triggered a 15-minute pause in trading, a rare event meant to prevent stocks from crashing. We look at why this happened and what it means for the U.S. economy.“The Latest,” from the team behind “The Daily,” brings you the most important developments on today’s biggest news stories. You can find more information about it here.

The coronavirus is now spreading rapidly around the world. People in more than 100 countries have been infected with more than 100,000 reported cases and over 3,000 deaths. Breaking news, concerns over the coronavirus outbreak and once again they are affecting the stock market. What markets are looking at is what's happening now and what they think is going to happen in the future. And investors here are very worried about the economic impact of the coronavirus. Hey, it's Jim Tankersley in the Washington Bureau of The New York Times. So it's been a crazy week for global markets. in the Washington Bureau of the New York Times.

So it's been a crazy week for global markets. Investors are watching the news on the coronavirus and trying to get a handle on just how much it's going to hurt the U.S. economy. And good morning, everybody. We're coming on the air with breaking news. This is the New York Stock Exchange. The trading day is just beginning on Wall Street. But the latest is that on Monday morning, all of investors' anxieties seem to come together,

and the world seemed to tip into this big sell-off that was a sum of all fears event. Right now it looks like the Dow is down by about 6.9 percent. This is some massive pressure. When the U.S. stock market opened, it was a bloodbath. Within five minutes, markets dropped seven percent, which is the worst since the 2008 financial crisis, and it triggered an event called a circuit breaker. Trading has stopped because we've seen a drop of 7%. Which is really rare. It stops trading in the stock market for 15 minutes, meaning effectively the stock market shut down.

There it is. Yep. There you see the cessation in ticks. Okay. The S&P, that means the first circuit breaker has been triggered. So why did that happen? Why was there a huge sell-off on Monday? Why were investors afraid?

Well, they were responding to several things. A state of emergency is now in effect in Washington state following the first U.S. coronavirus death there. Governor Gavin Newsom is declaring a state of emergency as California's coronavirus... The state of emergency was declared in New York in the last hour after the... The first was a fear that the coronavirus is spreading, that it's getting worse, and they're starting to game out what's going to happen the worse it gets. They're not seeing big slowdowns in the U.S. economy yet across the country, but they are seeing regional slowdowns in places like Seattle.

They're seeing that the more that this virus spreads, the more people are going to be basically pulled out of economic activity. They're going to be stuck at home. They're going to be spending less time in restaurants or in stores. Big events like South by Southwest are going to keep getting canceled. All of that puts a chill on economic activity. And that chill is what's really worrying the markets. It gets worse when you look across the world and see the coronavirus has affected the industrial belt of the Italian economy.

And that is really the concern. It's not. Wow. There are these other countries that are dealing with the virus right now or have been dealing with it. And their economies have really suffered. So stocks in Europe are attempting to rebound after losing about 8% last week as a number of coronavirus cases continue to rise across Europe. China, Italy, they have definitely had bigger quarantines, pulled more people and more activity out of the economy, and the market is afraid that's coming in the United States. Look, in this big, vast land of ours, this great country of ours, we have 240 cases. Most of those people are going to be

fine. And a second fear that the market is responding to is a lack of confidence in the Trump administration responding to that first fear, which is the spread of the virus. These are sort of fears that work together. And the idea is the administration has not been aggressively getting out in front of the virus and projecting calm, both on the public health side of the equation and on the economic side. President Trump himself keeps trying to downplay the effects of the virus economically and health-wise. We've had 11 deaths and they've been largely old people who are susceptible to what's happening. And that is worrying investors. They don't necessarily think that the administration

is going to succeed at slowing the spread of the virus, which, again, could make things a lot worse economically. And a third fear, which may be the biggest driver of what happened on Monday, is related to an oil price war that broke out this weekend and actually really has the possibility of hurting investment and growth in the U.S. economy. Wall Street is watching. They're watching what's happening to oil prices,

which are down more than 20 percent today in the wake of that price issue with Saudi Arabia. So in part related to the virus, there's been a fall off in demand for oil worldwide, and that's reduced the price of oil. And then over the weekend, here comes Saudi Arabia to do something that's going to make that price fall even worse. They've gone nuclear here. They did everything they could over the weekend to do and achieve the objective that we're seeing right now, which is this plummet in price. The Saudis have decided to ramp up production of oil, even in the face of lower prices, which is unusual. Not only did they say they're going to unleash more production next month, go over 10 million barrels a day. It could go to 12 million barrels a day. Absolutely.

And they're talking about that. But they also gave huge discounts for next month's purchases of their oil. Unprecedented numbers. They are trying to actively lower the price, drive some competitors out of business and consolidate their position in the global oil industry. So as a result, oil prices have fallen to as low as they were during the trough of the financial crisis. Now, that's good for gasoline-buying consumers, obviously, but it's bad for investment in the United States because America has become a huge oil producer over the last decade, thanks to the development of fracking and the shale revolution. So we have this oil price war happening at a really inopportune time. Put it together, the oil war, the coronavirus, the administration's response, and you have the collective reason why markets are freaking out.

If you're looking for something that could turn the markets around, it would be a positive development on any of those fronts. Maybe that's good news about containing the virus, or if the administration starts fundamentally changing its approach to stimulus, or if the Saudis back down and reduce production. Now, which one of those is most likely? It doesn't look like the virus is going to get better really soon. It doesn't look like the Saudis are going to change course anytime soon. So the best hope might be the president and Congress.

We are going to be asking tomorrow, we're seeing the Senate. We're going to be meeting with House Republicans, Mitch McConnell, everybody, and discussing a possible payroll tax cut or relief, substantial relief, very substantial relief. That's a big number. And there may be hope there. Leadership in the House and the Senate started talking about stimulus measures on Monday, and the White House actually had a huddle as well to talk about those measures. So it's possible the sides could come together.

So it's possible the sides could come together. We're also going to be talking about hourly wage earners getting help so that they can be in a position where they're not going to ever miss a paycheck. And if they could reach an agreement, that would be exactly the sort of good news that the markets have been looking for and might actually turn things around, at least a little bit. So yeah, that's the latest.